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Procurement Swamp Article

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Not sure if anyone read this, but Fortune Magazine had a fascinating article on DOD procurement this past weekend.  Not every day when acquisitions gets a center stage write-up like this (and DOD does not look good as a result).  Nobody looks good in this one (DOD Acquisition DefSec, Army CO's, DAU, GAO) but the underlying problem(s) are beyond DOD because the perverse incentive structures exist everywhere.  Impressions?

"Donald Trump, Palantir, and the crazy battle to clean up a multibillion-dollar Military procurement swamp"

 

 

 

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Fortune has written articles critical of military contracting going back a long way. I have one from the '30s that criticizes munitions manufacturers for profiting from war.

After 45 years in contracting I am now convinced that acquisition reform is not going to happen. Ever. There's simply no point in talking about it anymore. It's been tried in every presidential administration since WWII and it has never been achieved in any meaningful way, despite reform legislation, reform regulation, and reform policy "initiatives."

The founders did not design our system of government to make change easy. They designed it to make change hard. Moreover, the things that plague our government and its bureaucracy are things that plague humanity in general. We are not going to change them through our political process. Five years ago I wrote this in a published article in which I complained about the FAR:

Quote

The hopes for the new FAR in 1978 and the current state of the FAR show how difficult it is to make real and lasting improvements in a process as complex as acquisition and in an organism as complex as the federal bureaucracy. After nearly 40 years in this business, I see acquisition as a paradoxical phenomenon: its practitioners know (in their hearts) that they cannot fix it, but they also know that they have to keep trying. I discussed this paradox with a colleague recently. He said that the only guy who really knew how to change a system was Stalin.

I was shocked when my friend said that to me. Then I thought about it and laughed, because it was true, more's the pity.

The only way to fix acquisition is one acquisition at a time, by being as smart as you can.

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I have no idea if this is a confirmation bias that I am witnessing or what, but every day I see evidence that C. Northcote Parkinson was correct.  The function if a bureaucracy is to increase the number of subordinates and decreasing the number of rivals while making work for one another.  A bureaucrat's currency is budget and people, and they have incentive to grow both.  Here is a fairly good Economist article on Parkinson's Law.

Applying Parkinson's Law to DOD (or any other large, federated, cabinet level agency for that matter), one may say that the acquisition infrastructure is put in place to increase the number of acquisition subordinates while decreasing the rivals who would intrude on buying decisions.   

Parkinson also made the observation that (and I am paraphrasing but looking for a clean article on it) while the British empire was shrinking, more resources were placed in the areas of decline and never once did that change the course of that decline.

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I think this is the GAO protest the article references:

http://www.wifcon.com/cgen/412746.pdf

The article states the GAO did not have a complete administrative record when they generated this decision. The following CoFC decisions are here:

http://www.wifcon.com/cofc/16-784.pdf

https://ecf.cofc.uscourts.gov/cgi-bin/show_public_doc?2016cv0784-113-0

Thanks as always to Bob for curating these decisions for us.

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Quote

The function if a bureaucracy is to increase the number of subordinates and decreasing the number of rivals while making work for one another.  A bureaucrat's currency is budget and people, and they have incentive to grow both.  

I have maintained, futilely, that procurement offices need to be staffed via a deductive approach, not an inductive one. The inductive approach assigns billets based upon number of actions and number of dollars awarded, degree of competition, types of contracts, etc. This provides no incentive to be efficient. In fact, I have seen it create deliberately inefficient behavior so staffing can be maintained and increased.

It's time to go deductive. Tell each office your staff is being cut XX% and suggest it use more efficient means to issue solicitations, evaluate offers/ quotes, make awards and administer contracts. The FAR has plenty of flexibility to let offices do more with less.

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Is this article emblematic of our problems, or is this case sui generis? Perhaps this company's software was all they claimed, but this wouldn't be the first time that the off-the-shelf solution proved to be neither a real solution or even off-the-shelf.  We really don't know, and I suspect the author doesn't either.

I don't think there's an institutional bias against the commercial software solution.  We've spent lots of money implementing them across DoD.  There could've been a prejudice in this particular case against any non-incumbent.  But, as always with these articles, I feel like I'm not really getting the full picture.

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On 4/3/2017 at 7:12 AM, jonmjohnson said:

I have no idea if this is a confirmation bias that I am witnessing or what, but every day I see evidence that C. Northcote Parkinson was correct.  The function if a bureaucracy is to increase the number of subordinates and decreasing the number of rivals while making work for one another.  A bureaucrat's currency is budget and people, and they have incentive to grow both.  Here is a fairly good Economist article on Parkinson's Law.

Applying Parkinson's Law to DOD (or any other large, federated, cabinet level agency for that matter), one may say that the acquisition infrastructure is put in place to increase the number of acquisition subordinates while decreasing the rivals who would intrude on buying decisions.   

Parkinson also made the observation that (and I am paraphrasing but looking for a clean article on it) while the British empire was shrinking, more resources were placed in the areas of decline and never once did that change the course of that decline.

Did anybody else read Ms. Bales' written testimony to the HASC Subcommittee (available on WIFCON Home Page)? In it, she called for more headcount (and presumably more budget) in order to continue to shrink DCAA's backlog of unperformed audits.

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The below excerpt from the article jumped out at me:

"Whether it’s the F-35 or any other program, the goal for Pentagon managers is always the same, says one GAO auditor: 'Get a ‘go’ decision. Their careers are tied to that—putting a great new product out in the field. So their incentives,' he explains, 'are always to, first, present an estimate that is low enough that it doesn’t get pushed behind some other program; second, to present really cool, cutting-edge features; and, third, have little enough actual knowledge of what it will cost and whether the features are achievable that you’re not deliberately deceiving anyone. Once you get the project underway, it then becomes hard to stop.'"

This strikes me as one of the important sources of dysfunction on the defense acquisition system. DOD Military and government officials' career/performance incentives are tied to managing large defense programs. I recognize that many are well-run. Many, like the Missile Defense Agency, are doing their best to field technology on the leading edge of what is physically and technically possible in the face of emerging national security threats. They are forced to do R&D and field missile defense systems at the same time--not an optimal approach, but one that we accept due to the threats we face. Many other defense programs would no doubt characterize themselves the same way, from the F-35 to Army ground programs. All are pressing forward on acquisition fronts to maintain the capability edge over adversaries.

But there seems to be an inability and/or unwillingness to recognize risks and problems earlier in the acquisition cycle--probably stemming from a belief that once the program gets underway, it will take on a life of its own, and whatever funding is necessary to help the program across the finish line will be found somewhere. Then, as others in these forums have noted, no one is ever held to account for program/acquisition failures. Some suggest that this would be inconceivable in the private sector, but I'm not so sure ("golden parachutes," etc.) As Vern astutely pointed out, these are human condition problems.

That said, in light of the human condition, Palantir representatives would have been wise to throw on some business-casual attire and ratchet down the arrogance for meetings with government folks. The government people already know their processes, rules, and regulations are "Kafkaesque," and I would not be surprised of many of them were indeed idiots, but Palantir's condescension likely did not help its cause.

That said, if Palantir's product does have the capability the article suggests at the price tag cited, I hope our acquisition system can find a way to take a serious look at the company's offerings, despite the sunk costs on DCGS. 

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1 hour ago, EDantes said:

This strikes me as one of the important sources of dysfunction on the defense acquisition system. DOD Military and government officials' career/performance incentives are tied to managing large defense programs.

True. But while career incentives are a factor, there is much more to it. Inter-service rivalry, intra-service warfighter cultures rivalry, warfighting doctrine, national politics and prestige, corporate rivalry (as opposed to competition in contracting), bureaucracy, international relations and coalitions, arms sales, sales to armament makers, profits, jobs--all are factors and have been since the end of WWII and the beginning of the Cold War.

Acquisition reform focuses on the conduct of program management and contracting, but those activities are not the prevailing factors in determining program outcomes. We cannot significantly improve major program decisions and outcomes through the use of things like earned value management and contractual incentives.

Acquisition reform is us being kidded and we kidding us.

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"Whether it’s the F-35 or any other program, the goal for Pentagon managers is always the same, says one GAO auditor: 'Get a ‘go’ decision. Their careers are tied to that—putting a great new product out in the field. So their incentives,' he explains, 'are always to, first, present an estimate that is low enough that it doesn’t get pushed behind some other program; second, to present really cool, cutting-edge features; and, third, have little enough actual knowledge of what it will cost and whether the features are achievable that you’re not deliberately deceiving anyone. Once you get the project underway, it then becomes hard to stop.'"

There was one of the many studies in acquisition that explained this in a very similar fashion.  It was a multi-volume and I think it had a red cover.  I may even have it around here somewhere.  Let me see if I can find it.  Its about 30 years old--I think.

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The commission was the 1986 Packard Commission.  So it is 31 years ago.  The starting page is p, 44.  Have fun reading it. 

Quote

But is the "system" really broken? Have we learned nothing from passing 4,000 laws, 900 GAO reports, twelve post-World War II major acquisition reform studies, and 200 years of defense acquisition experience? Is the defense acquisition process inherently flawed and beyond repair?

Remember GAO came late to the party in 1921.

You can read paper after paper, study after study, commission report after commission report, etc.  This one provides the quote above and is entitled:  The Ghosts of Acquisition Reform Past,, Present And Future.  1996.

 

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Many people like to focus on the DoD procurement system and its flaws, but do not take a similar critical look at civilian procurements.  If a current analysis were to be done of DoD system procurements and civilian agency system procurements, I would not be surprised to find that DoD, on the whole, conducts acquisitions and manages programs in a more efficient manner that do the civilian agencies. 

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DOD procurement is no different than CIV sector.  Just more, bigger, larger, higher dollar, but problems are absolutely similar.  Inefficient is inefficient, and nobody claimed that CIV sector was better.  Poor efficiency on one hand and worse efficiency on the other doesn't make the situation better.

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jonm, agree, but the problem cannot be solved without a recognition of exactly what the problem is.  The problem is not just within DoD and the points Vern raised as to the causes of the problem have some application to the civilian agencies, but there are other issues at play in regard to their acquisitions.  Those need to be identified and analyzed.  Such a study might lead to a better understanding of the problem and possible ways to manage, but not necessarily cure, the condition

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There are current bills to perfect the procurement process at DHS and VA.  Later this year the NDAA will further perfect DoD and whatever other agency that may get caught up into the bill.  Currently, there are more perfections being proposed for SBA programs and Buy-America provisions.  Its only 3 months into the 115th Congress and Congresses run about 24 months.  We're not even talking about budget perfections, such as continuing resolutions, that have already been made or are in the future. 

Now, we have a new Administration appointing agency regulation busters who are going to perfect the acquisition regulations.  Maybe the FAR Councils will get involved.

For years, new Congresses and Administrations have been kicking around the procurement rubble left by previous Congresses and Administrations.  Its just part of the Procurement Perfection Process and it will never stop and it will never improve anything. 

 

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Bob, I have been around long enough to have progressed from being skeptical to being cynical about things.  However, there are some things that I hope most people will agree have been improvements to the procurement process.  For example, when I first started in this business, there was a requirement to use formal advertising unless one or more of 14 exceptions existed.  For most of the exceptions, a D&F had to be prepared and there were different levels of approval for the D&F depending on what exception was being used.  Also, a D&F had to be prepared if a cost reimbursement contract was going to be used.  Thank goodness those requirements no longer exist.

Another form of progress is the raising of the SAT (I have forgotten what it was called years ago) from $2,500 to its current multiple ceilings.

A final improvement I hope we can agree on is the indexing of many thresholds to at least partially account for inflation.

I am sure there are others, but I think there have been some improvements, but there could be more such as raising the thresholds for Davis-Bacon and Service Contract Act application.

 

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The thing of it is that the improvements noted above are simply incremental improvements that do not address fundamental process flaws. Incremental improvements are fine! For example, if you have a fever, taking aspirin will lead to an incremental improvement and you will feel better. Unfortunately, taking aspirin will not address an underlying infection. To treat the infection, you need something stronger.

Let me propose something: Instead of applying contract requirements (e.g., CAS, Davis-Bacon, Buy American, etc.) by contract type and dollar value, why not consider applying them to categories of contractor? For example, let's make "non-traditional defense contractors" (yes, that's a thing) exempt from pretty much everything and just enter into a UCC contract. Let's exempt small businesses from CAS and D-B and SCA and Buy American. (Small businesses still need to comply with CAS through FAR Part 31. Let's end that.) Let's layer on requirements as the contractor grows and matures. By the time the contractor is in the Top 100, it should have to comply with the whole enchilada.

Just a thought.

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1 hour ago, here_2_help said:

Instead of applying contract requirements (e.g., CAS, Davis-Bacon, Buy American, etc.) by contract type and dollar value, why not consider applying them to categories of contractor? For example, let's make "non-traditional defense contractors" (yes, that's a thing) exempt from pretty much everything and just enter into a UCC contract. Let's exempt small businesses from CAS and D-B and SCA and Buy American. (Small businesses still need to comply with CAS through FAR Part 31. Let's end that.) Let's layer on requirements as the contractor grows and matures. By the time the contractor is in the Top 100, it should have to comply with the whole enchilada.

help:

You're missing the political factor, especially with respect to the labor laws and Buy American. The political factor is a big part of what makes government contracting the way it is. Imagine being a Democrat and voting to eliminate the labor laws. Imagine being any member of Congress and voting against Buy American, especially these days.

In any case, it's not the size of the contractor that should matter as much as the extent of its participation in the government market. How many government dollars does it bring in each year. How much of its sales and revenue come from the government? How much of its profit comes from the government? Maybe the government should focus mainly on those companies that are really government dependents.

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Vern,

I didn't really miss the political dimension, I just ignored it. As I was typing my post criticizing (somewhat) "incremental" improvements, I thought it would only be fair for me to offer something that I thought would be more than an incremental improvement. So I did. Do I think my approach has a chance of being implemented by Congress? Of course not. But I felt I should offer something.

Yes, government participation should be a factor in my proposed innovation. Perhaps--as you suggested--the most important point. I agree! So let's make it happen ... you get on Rocinante and I'll follow. Where's that windmill for us to attack?

Sancho Panza

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In 1984, "they" told PepeTheFrog the three sets of procurement regulations were rolled into a unified field theory of government contracting-- the Federal Acquisition Regulation (FAR). Where once there were three: Defense Acquisition Regulation (formerly Armed Services Procurement Regulation), Federal Procurement Regulation, and NASA Procurement Regulation...then there was only one: the FAR.

Fast forward three decades. Agency supplements have multiplied like rabbits.

This will not solve all the problems, but wouldn't it be nice to have only two? One for the DOD (and probably DHS, NASA, maybe Energy), and one for everybody else?  PepeTheFrog believes Vern Edwards has suggested this exact idea in other threads about

On 4/8/2017 at 10:58 AM, Vern Edwards said:

Acquisition reform

 

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