Undersecretary of Defense for Acquisition and Technology
Paul G. Kaminski today announced
a series of actions the
Department is taking to ensure that defense industry vertical
integration does not harm defense products. These actions,
Kaminski noted, implement the recommendations of the Defense
Science Board Task Force's Report on Vertical Integration and
Supplier Decisions.
The Department's actions will improve its ability to
recognize and address problems that may arise from vertical
integration in the future. As a result of industry
consolidation, major firms who build defense weapon systems have
acquired the capabilities to produce primary subsystems and
components that go into those platforms. This means the firms
are more vertically integrated.
These actions, will give us an early warning system and
enable us to get ahead of potential problems with vertical
integration. They are an important addition to our ability to be
smart, effective, well-informed buyers. This keeps us on course
to ensure our continued access to competitive, innovative
subsystems and components that help provide the Department's
leading edge in purchasing our weapon systems, said Kaminski.
The DSB Task Force found the DoD's process to review
proposed industry mergers and acquisitions is working well. In
working with the antitrust enforcement agencies, the Task Force
said, DoD is effectively identifying vertical integration
concerns. However, they found the DoD is not as well postured in
its ongoing acquisition program management to recognize when
vertical integration might create a potential problem.
While little evidence was found that firms are using their
increased vertical integration to harm defense products or other
firms today, the DSB Task Force cautioned the DoD that vertical
integration may cause problems in the future. A potentially
static defense business climate, with few new programs and a
concentrated industry, may in the future encourage firms to use
internal vertical capabilities to their advantage and to
other firms' disadvantage in the process. Over time, the DSB
Task Force found, such actions could reduce competition and
innovation for important defense subtier products.
Kaminski directed actions in DoD acquisition program
management in three areas. They include:
Increasing visibility by monitoring selected, important
subtier supplier product and technology areas. This includes DoD-
wide monitoring by Deputy Undersecretary for Industrial Affairs
and Installations John B. Goodman, as well as scrutiny by
individual acquisition program managers of their contractors'
choices of suppliers and teams.
Fostering competition at prime contractor and subtier
supplier levels. Vigorous best value competition at the prime
level stimulates competition at the subtier level. In devising
its acquisition program strategies, the Department will consider
alternatives such as using open systems architectures, promoting
leader/follower productions, funding a program risk reduction
period to encourage more entrants, and elevating critical subtier
product areas in source selection reviews.
Improving the knowledge of Department managers about
industry, so they can be smart, effective arms-length buyers.
The curricula at defense schools and the credentials of DoD's
acquisition managers will be expanded to emphasize industrial and
business knowledge.
Kaminski also directed that a program funding element be
established to support the Deputy Undersecretary of Defense for
Industrial Affairs and Installations as he manages the overall
implementation of these new actions.
The DSB study, chartered by Kaminski last year, included
industry and antitrust analysts, representatives of industry, and
representatives of the antitrust enforcement agencies.
