Government Contracts Monitor

Congress Demands More Oversight on Major Defense Systems Acquisition

June 18, 2009

By: Eric Whytsell

On May 22, 2009, President Obama signed the Weapons Systems Acquisition Reform Act of 2009 (WSARA), a statute that, in the President’s words, aims to “eliminate some of the waste inefficiency in our defense projects.” 

The Act passed unanimously in the House and Senate. “While it is tempting to conclude that a bill so unanimously supported must not do anything,” said House Armed Services Committee Chairman, Ike Skelton (D-MO), “in this instance, Congress will . . . adopt tough medicine for the acquisition system.”

GAO’s Findings

The WSARA affects the acquisition of “major defense acquisition programs” -- Department of Defense (DoD) programs that are estimated to require an eventual total expenditure of $300M for R&D or $1.8B for procurement.  Notable examples include the Joint Strike Fighter, Future Combat System, and the Expeditionary Fighting Vehicle.  According to a General Accountability Office (GAO) report, there were 96 such programs in 2008, representing a total commitment of $1.6 trillion. These programs exceeded their initial cost estimates by $296 billion and were behind schedule by an average of 22 months.  GAO puts most of the blame on a broken acquisition process:

At the program level, the key cause of poor outcomes is the approval of programs with business cases that contain inadequate knowledge about requirements and the resources – funding, time, technologies, and people – needed to execute them.

GAO concluded that DoD approved programs where the developer had not completed a preliminary design demonstrating feasibility. Completed designs failed to meet DoD requirements and developers often lacked the manufacturing processes to efficiently produce the product. As a result, too many products arrived late and over-budget.

The Act’s Provisions

In passing the WSARA, Congress sought to minimize waste and inefficiency by codifying acquisition reforms that impose more transparency and oversight at an early point – before programs reach the development phase. The key provisions include:

• New Approvals Required to Prevent Cost-Overruns – §201 of the Act requires a certification that appropriate trade-offs have been made among cost, schedule, and performance objectives prior to granting a “Milestone B” certification (when a final decision is made to proceed with system development). §204 requires notification to the Milestone Decision Authority if the cost estimate grows by more than 25% above the original program baseline prior to Milestone B approval. The Milestone Decision Authority is then required to review the program, consider termination, and submit a report to the congressional defense committees containing its findings.

• Termination of Costly Programs – §206 imposes a “presumption of program termination” when the program unit cost of a major defense acquisition program increases by at least 15% above the unit costs in the current acquisition program baseline or 25% above the original program baseline. If this happens, the Secretary has to terminate the program or issue a waiver. If a waiver is granted, the procuring agency must restructure the program in a manner that addresses the cost growth and issue a certification to Congress.

• Life-Cycle Competition - §202 requires the Secretary to take measures to ensure competition at both the prime contract level and the subcontract level throughout the life-cycle of a program “as a means to improve contractor performance.” Available measures include: (1) competitive prototyping; (2) dual-sourcing; (3) unbundling of contracts; (4) using modular, open architectures to enable competition for upgrades; and (5) the licensing of additional suppliers. Prime contractors will also be required to take additional measures to ensure that more work is subcontracted, rather than performed by the prime.

• Additional Organizational Conflict of Interest Provisions - §207 requires the Secretary to revise defense acquisition regulations within 9 months to provide “uniform guidance and tighten existing requirements for organizational conflicts of interest [OCI]” for major defense acquisition programs. The new regulations are to primarily address OCI that arise from (1) contracts awarded to affiliates of prime contractors; and (2) contracts awarded for advice on systems architecture and systems engineering matters.

• New Acquisition Personnel Positions – Title I of the Act creates several new positions within DoD, including (1) A Director of Cost Assessment and Evaluation to ensure the use of “realistic estimates of cost” in future DoD decisions; and (2) A Director of Development Test and Evaluation to ensure the development of technical expertise to oversee complex weapons programs.  The Act also requires the designation of an official responsible for performance assessment and root cause analysis to carry out periodic performance assessments of programs. In addition, it also assigns responsibility to the Director of Defense Research and Engineering for reviewing the technological maturity of major weapons programs.

Impact

Previous legislative efforts to curtail spending on major defense acquisition programs – the Nunn-McCurty Amendment comes to mind – were largely unsuccessful. With this new legislation, Congress seeks to go back and “put teeth” into its previous efforts.  By tightening regulations designed to foster competition and by requiring termination of programs that run over-budget, the WSARA attempts to change how major defense acquisition programs are acquired (for another proposal, read Steve Kelman’s excellent column on this issue in Federal Computer Week).  As is the case with all legislation of this sort, we will have to wait to see how this ambitious goal plays out in practice.

As a practical matter, however, both prime and subcontractors on major defense acquisition programs should be prepared for more oversight and scrutiny of cost estimates and subcontracting decisions as a result of this legislation. Although defense spending is up 4.5% in the 2010 budget, look for less money to be spent on these major weapons systems. Of course, where there is change, there is also opportunity – the push for competition and new OCI rules may mean that smaller firms will become involved in these large programs as subcontractors and technical advisors. 

This article was authored by Samuel W. Jack, and J. Eric Whytsell, Jackson Kelly PLLC.