Defense Procurement Reform
On May 21st, the House passed the final version of the Weapons Systems Acquisition Reform Act, S. 454, which substantially beefs up oversight of the Pentagon’s system of acquiring weapons, promotes greater use of competition in weapons acquisition, and requires DOD to revise its regulations in order to better prevent conflicts of interest in the acquisition process. On May 22nd, President Obama signed the bill into law.
Cost overruns in major defense weapons systems are a huge drain on the defense budget. A report from the Government Accountability Office (GAO), published in March, found that the Pentagon’s 96 largest acquisition programs had cost overruns of $296 billion and were on average 22 months behind schedule.
These cost overruns are staggering – even for individual weapons systems. For example, just two major weapons programs alone – the next-generation Joint Strike Fighter and the Future Combat System – have racked up cost overruns of $80 billion.
The total of $296 billion in cost overruns is more than the amount we spend on salaries and health care for the entire American military for two full years.
This conference report is a responsible compromise between the House and Senate versions of the bill. The Senate passed its version of the bill by a unanimous vote of 93-0 on May 7. The House passed its version by a vote of a unanimous vote of 428-0 on May 13.
This bipartisan legislation is designed to crack down on the Pentagon’s cost overruns and to get the most bang for the buck for American taxpayers. It will substantially beef up oversight of the Pentagon’s system of acquiring weapons, promote greater use of competition in weapons acquisition, and require DOD to take steps to prevent conflicts of interest in the acquisition process. Enactment of this bill could save taxpayers tens of billions of dollars.
Enactment of this bill will be part of a broader effort by Defense Secretary Gates to substantially reform government contracting at the Pentagon. Indeed, on May 6, Deputy Defense Secretary William Lynn reported to Congress that the Pentagon plans to add 20,000 personnel over the next five years to ride herd on contracts, cost estimates and oversight.
An overview of some of the key provisions of the bill:
Provides for a presidentially-appointed Director of Cost Assessment and Program Evaluation at the Pentagon. The conference report provides for a presidentially-appointed and Senate-confirmed Director of Cost Assessment and Program Evaluation at the Pentagon. The new director will take over the personnel and functions of the Defense Department’s director of Program Analysis and Evaluation (PA&E), including the Cost Analysis Improvement Group. This position is currently not presidentially-appointed and Senate-confirmed. This new director will have key responsibilities for implementing many of this bill’s new requirements for cracking down on cost overruns and ensuring taxpayers are getting a better value for their dollar.
Provides for a Director of Developmental Test and Evaluation and a Director of Systems Engineering. The conference report also provides for a Director of Developmental Test and Evaluation and a Director of Systems Engineering, working in close coordination, to oversee the design, development and testing of weapons programs in the early stages.
Tracks cost growth of weapons programs in the early stages of development. The measure requires the Defense Department to set up a new system to track the cost overruns and schedule changes that happen early on in the procurement process – when most of the waste and the least of the oversight currently occur. Specifically, the measure would require program managers to notify the Pentagon’s Milestone Decision Authority if the total costs of a weapons program grows beyond 25 percent, or if the schedule for the program slips by more than 25%, prior to “Milestone B,” the decision point where system development begins. The Authority would then have to review the weapons program and consider terminating it.
Requires greater oversight and scrutiny of troubled weapons programs that have raised questions. The measure mandates that if the Pentagon’s Milestone Decision Authority offers a waiver to a troubled weapons program, it would have to review the program at least annually until the program meets stipulated criteria. It would also have to flag the program every time the Pentagon sends budget documents to Congress.
Promotes greater use of competition in the weapons acquisition process. The measure requires the Secretary of Defense to ensure that the acquisition strategy for each major weapons acquisition program includes measures to preserve the option of competition, at both the prime and subcontract levels, throughout the life of the program. It specifies ten competition-promoting measures for consideration in acquisition strategies – such as unbundling of contracts, developing second sources, periodic competitions for subsystem upgrades, and similar measures in order to promote competition.
Requires DOD to take steps to prevent conflicts of interest in the weapons acquisition process. The measure requires the Secretary of Defense to revise regulations dealing with contractors’ organizational conflicts of interest. The measure requires that the regulations, at a minimum, address conflicts of interest that could occur as a result of such instances as companies that have business units providing technical advice/assistance services to DOD on a major weapons program and also have business units that are competing to be the prime contractor or a major subcontractor for the same program. Similarly, the regulations must require that a contractor that performs systems engineering and technical assistance functions on a major weapons system cannot have a corporate affiliate that is a major contractor on the same weapons system (while allowing DOD to establish limited exceptions to this requirement.)