DOD's high-risk culture

Salespeople who promise leaps in technology are more appealing to DOD's leaders than modest peddlers who offer incremental improvements

GAO's April 2006 report on defense acquisitions (.pdf)

Which is hotter: an accountant or a rock star? If you picked rock star, you already have a glimmer of insight into why the government — and the Defense Department in particular — repeatedly awards contracts to companies that promise the hottest technology, even if it’s less mature than the other options.

But an affinity for the latest and greatest — and riskiest — technology is hardly unique, and blaming DOD’s contracting problems on one cause is misleading. Among high-risk technologies, software is the riskiest of all, said David Cottengim, an accountant at the Defense Finance and Accounting Service who has spent more than 14 years developing systems for DOD. “Almost all software-intensive programs fail,” he wrote in an article in the December 2005 issue of the Defense Acquisition Review Journal.

When examining DOD’s contracting problems over the course of several decades, immature technologies show up as a big contributor. Recent examples include the Joint Tactical Radio System clusters, the Warfighter Information Network-Tactical program and the System-of-Systems Common Operating Environment.

But immature technologies are not solely to blame for programs that are billions of dollars over budget, years behind schedule and far short of their promises. Many other circumstances also contribute to problems, including weak business cases, fixed-price contracts, consolidation among the defense contractors, restricted communication with vendors and lack of oversight.

One of the most vocal critics of high-risk programs is Comptroller General David Walker, the top official at the Government Accountability Office. “Without mature technologies at the outset, a program will almost certainly incur cost and schedule problems,” Walker wrote in a December 2006 report to Congress. Nevertheless, he said, DOD’s acquisition community “moves forward on programs with technologies before they are mature and takes on responsibility for technology development and product development concurrently.”

The risks involved in being ahead of the curve in technology development are well-documented, but that does not diminish the appeal of the potential rewards for taking those risks, procurement experts say.

“We want technological sophistication, and we want good value,” said Joshua Schwartz, co-director of the Government Procurement Law Program at George Washington University Law School. “Contractors desperately want to sell us these incredibly ambitious and technologically risky, if potentially very effective, new weapon systems. There’s a lot more money to be made in bold new visions, but the risk is much higher.”

Schwartz said DOD is not alone in its willingness to take those risks. The Coast Guard, for example, undertook the ambitious Integrated Deepwater System modernization program with high hopes. “If everything had all worked out right, it would have been a leap forward,” he said. But trying to skip a generation of development also means you expose yourself to an increased risk of failure, he added.

Contractors are not necessarily to blame for agencies buying immature technologies, said Paul Francis, GAO’s director of acquisition and sourcing management, adding that conservative solutions don’t sell. “If contractors promise to advance the technology by a generation, whether that’s realistic or not, they fare better [than they do with] solutions that may be [only] incrementally better,” he said.

A step at a time
Experts began documenting the effectiveness of an incremental approach to systems acquisition decades ago. The General Services Administration has continued to update its 1998 “Guide for Modular Contracting,” and in 1975, defense acquisition expert Robert Perry testified before a Senate subcommittee on the benefits of what he called a strategy of incremental acquisition.

Perry examined U.S. and European government contracts that were successful in terms of cost, schedule and performance and those that were not. Success predictably resulted from incremental development — namely, following a careful sequence of decision-making, development and production.

DOD used that approach in the 1990s in developing the Joint Strike Fighter, said Stan Soloway, former deputy undersecretary of Defense for acquisition reform and director of the Defense Reform Initiative. Today, Soloway is president of the Professional Services Council. “JSF was proving technology before moving on to the next milestone, although there was some disagreement between GAO and DOD as to whether the proveout was done,” he said. “They each had different definitions of what the proveout should be.

“You can say DOD is reaching for future technology, and it has to take a more evolutionary approach, but a balance has to be achieved there,” Soloway said. “You can’t wait forever to field new technology if there's an imminent threat.”

Acquisition experts say DOD has often resisted the lessons of incremental acquisition to its detriment. DOD “isn’t interested in a better mousetrap,” said Ray Bjorklund, senior vice president and chief knowledge officer at Federal Sources Inc. Instead, military forces want technology that their adversaries don’t even know about.

That mentality drives DOD’s ongoing pursuit of high-risk technology, Bjorklund said. “You have to acknowledge that the way a national — in this case, military — security force can prevail in almost any kind of conflict can be anticipated,” he said. Therefore, the military needs to embrace technology that is more than incrementally better than what its adversary has, he added.

In one case, the military got lucky, Bjorklund said. The B-2 bomber required the development of five complex new technologies, “and although there were glitches, in the end, it worked, so the military was able to bring those very advanced technologies into the force structure in a way that contributed to the United States prevailing in the Cold War.”

Weak business cases
In addition to favoring hot technologies, Walker said, DOD leaders frequently commit to undertaking complex programs before they have made a sound business case for them. He told Congress that a big reason for cost overruns is DOD’s tendency to begin a project without a business case that matches requirements with technology, acquisition strategy, schedule and funding.

Nearly 80 percent of the DOD programs GAO reviewed last year did not have sound business cases before leaders committed to developing systems to support those programs, and most of the programs GAO reviewed started developing systems using immature technologies, auditors wrote in an April 2006 report to Congress, “Defense Acquisitions: Major Weapon Systems Continue to Experience Cost and Schedule Problems Under DOD’s Revised Policy.”

Acquisition experts say the type of contract that DOD typically awards is another factor in cost overruns. Congressional pressure to use fixed-price contracts not only fails to curb cost overruns, it encourages them, Schwartz said. “Fixed-price contracts are calculated to get better value for the government if the risks involved in performance are not too great,” he added.

When a project’s risk level rises, Schwartz said, vendors make unrealistic promises either because they have no clue what the project will actually cost to complete or because they expect to receive supplemental appropriations or have an opportunity to modify the contract later. He said
that is a dishonest game that punishes ethical contractors, which will only bid on a job if they can do it for the bid price. “It’s those that say, ‘Who cares? The Navy can’t afford to give up on this project,’ that benefit,” he added.

The big payments that flow to contractors in such situations make for dramatic headlines and fuel congressional outrage. But the government can’t always negotiate from a position of strength, legal experts say. After 20 years of consolidation in the defense industry, few companies remain that can handle large, complex projects, Schwartz said. “If we drive one of them bankrupt by holding their feet to the fire on contracts on which they’ve failed, we’ve eliminated a competitor, which may be cost-ineffective in the long term,” he said. “If we only have one firm competing on a contract, we really have a problem.”

Some experts blame government contracting law for DOD’s acquisition crises. When the evolution of government and private-sector contract law diverged in the 1990s, it set the stage for some of today’s problems, they say.

“Laws often have been enacted in response to horror stories, and over the years, that has contributed to the accretion of contract requirements,” said Dan Heinemeier, president of the Government Electronics and Information Technology Association. Because of those regulations, government acquisition officials fear making a misstep, he said. “That limits communication and creates an adversarial atmosphere that doesn’t exist in the private sector,” he added. “There’s a sense that if I talk too much to vendors too late in the acquisition process, I could get in trouble.”

The overwhelming number of rules, regulations and laws takes a toll on agencies and contractors in other ways. “Attracting the innovators — that’s our biggest challenge,” said Evelyn DePalma, director of procurement at the Defense Information Systems Agency and chief of the Defense IT Contracting Organization. “We want to hire these people, but innovative companies often are small businesses, and they don’t want to do business with us because of the paperwork.”

300,000 professional shoppers
Some policy experts say an understaffed federal acquisition workforce has exacerbated an already challenging procurement environment. Notwithstanding the reforms it engendered, the National Partnership for Reinventing Government initiative of the 1990s must share some of the blame for the reduced oversight that accompanied its streamlining efforts, Schwartz said.

The initiative’s efforts to create an empowered government workforce had some success, he said. But along with empowerment came “a gutting of the federal acquisition workforce, especially at DOD,” he added.

Rep. Duncan Hunter (R-Calif.) was one of the lawmakers driving those reductions. “There were 300,000 professional shoppers in DOD in 1994,” he said during a hearing in 2003 when he was chairman of the Armed Services Committee.

DOD didn’t need 300,000 shoppers, Schwartz said, “but it did — and does — need about that many state-of-the-art acquisition professionals, and it doesn’t have them.”

DOD’s controversial hiring of lead systems integrators is an effort to deal with the inadequacy of the federal acquisition workforce, said Schwartz, who was a member of the government’s Acquisition Advisory Panel. “It’s the nexus that ties all these problems together.”

The size of defense contracts and the amount of cost overruns have raised the profile of DOD’s contracting problems. “We’re starting to go for systems of systems, which makes the units we’re dealing with bigger,” Francis said. “Whereas in the past we may have been looking at $10 billion to $70 billion contracts, now we’re looking at $200 billion to $300 billion contracts.” And when high-cost contracts experience cost overruns, they tend to be proportionately high, he added.

Problems in government contracting have existed for 30 years or more, he said, adding that although the ingredients are different today, they boil down to the same problem. “We’re not getting the outcomes we’re paying for, the weapon systems we are getting cost significantly more than what we contracted for, and they don’t always do what they’re supposed to do,” he said.

But for all the criticism leveled at government contracting and all the earnest efforts at reform, the system may not change significantly, Francis said. The participants — the press, Congress, DOD, contractors and the critics — are not necessarily unhappy with the way it works now, he said.

Francis offered one explanation for why leaders appear unable to fundamentally reform defense contracting. “If we were more realistic in estimating costs and schedules, we’d have higher cost estimates and we’d have to approve fewer projects,” he said. “DOD would get fewer of the things it wants, less work would come to congressional districts, contractors would make less money, and there would be fewer jobs,” he added. “As long as the way we’re doing these contracts meets the needs of the participants, we’ll continue to do them this way.”

Lais is a freelance writer based in Takoma Park, Md.
Not a snowball's chance for successIf your program is heavily dependent on software, experts say, you’re starting out with two strikes against you and one hand tied behind your back.

David Cottengim, an accountant at the Defense Finance and Accounting Service, said a study of 250 complex, software-intensive projects identified only 25 as successful in achieving their initial cost, schedule and performance objectives. He defines a failed project as one that is six months over schedule and 15 percent over its cost estimate.

The successful projects all made good use of:
  • Project planning.
  • Cost estimating.
  • Measurement techniques.
  • Milestone tracking.
  • Change management.
  • Quality control.
  • The failed projects also had much in common, including:
  • Inadequate resources.
  • Unrealistic schedules.
  • Unclear goals and lack of direction by senior executives.
  • Team members who lacked commitment.
  • Inadequate planning.
  • Communication breakdowns.
  • Changes to the goal and resources.
  • Interdepartmental conflicts.

— Sami Lais
A crystal ball? Priceless.The Government Accountability Office used data from studies by several groups, including the Defense Department’s Tri-Service Assessment Initiative and the Standish Group International, to paint a depressing picture of success rates of software-intensive programs.

Here are some of the numbers:
  • Projects eventually canceled — 33 percent.
  • Average cost overrun — 189 percent.
  • Average schedule overrun — 222 percent.
  • Projects delivering originally specified features — 61 percent.

— Sami Lais

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