people are policy; process isn't

Hasik Analytic LLC

People are Policy. Process Isn't.Frank Kendall's instructions on “Improving Milestone Process Effectiveness” may not change outcomes, but they will change how you do business with the US Department of Defense. We look at the changes ordered, assess the likelihood that they will matter in the long run, and describe how design for and marketing to the military will need be different in the near term.

Defense-Industrial Research Memorandum #2011-01, 29 July 2011

James Hasik+1-512-299-1269www.hasikanalytic.com

THE BACKGROUND

Frank Kendall says that the Pentagon will be taking a closer look at programs earlier in the process. Just over a month ago, the Principal Deputy Under Secretary for Acquisition, Technology, and Logistics (PDUSD AT&L) issued a four page memorandum, “Improving Milestone Process Effectiveness,” detailing forthcoming changes to Department of Defense Instruction (DoDI) 5000.02, the governing document for all military systems acquisition. Concisely restated, Kendall ordered three significant changes to the process:

MDAs will now review RFPs. Milestone Decision Authorities (MDAs) will now conduct their Milestone A reviews prior to the final release of requests for proposal (RFPs) in the Technology Development (TD) stage of programs. Until now, at least according to the 5000.02, a program manager (PM) merely needed the MDA's approval of his TD strategy in order to issue a final RFP.1 MDAs will also hold a new review prior to entering the Engineering and Manufacturing Development (EMD) phase—a "pre-EMD review"—before releasing the final RFP for EMD.

1 DoDI 5000.02 (8 Dec 2008) encl. 2, §5e(6); and 10 USC 2366a

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Again, until now, final RFPs just awaited the MDA's approval of the PM's acquisition strategy.2 Kendall stressed that at these meetings the MDAs are to determine whether the programs appear to be affordable, executable, and based on sound business practices.3 Then, at Milestone B, the MDAs will focus their attention on changes since the pre-EMD review; if there are no significant changes, they may proceed to a perfunctory "paper DAB" (a virtual meeting of the Defense Acquisition Board, or other MDA).

Peer reviews precede production. Prior to issuing the final RFP for production, or entering into final negotiations for production in a non-competitive procurement, the Department will order up peer reviews of the big decisions being taken.

Hold the PowerPoint. To make sure that all this extra scrutiny doesn't create a new blizzard of paper, the PMs are being told that they should basically just bring their program planning documents—systems engineering plans, test & evaluation plans, etc.—to the Milestone meetings, and that the MDAs can work from those.

The intent of all these changes is to get a better handle on the costs and risks earlier in procurement efforts, so that nasty surprises don't turn into multi-year, slow-motion train wrecks several congressional sessions later. And at a certain level, the reasoning appears sound.

Defense Department PMs can be said to suffer from a form of regulatory capture, in which they become champions for their programs and suppliers, and not the dispassionate administrators that the government needs. As such, they've sometimes garnered a bad reputation for hiding the dirty laundry from the political appointees. Bereft of managerially useful information, MDAs—and particularly the DAB itself—have too infrequently called full-stop on out-of-control acquisition efforts. Rather, presented with fully-baked plans,4 they've come collectively to believe that significant changes to acquisition strategies and program plans would be highly disruptive, and deeply embarrassing. So, they sign, and they hope for change.

If anything else were true, the Army's report card on the subject the other week wouldn't have counted up $3 billion in annual wastage over more than a decade. The words “Future Combat System” ought to be enough to make the point alone.

OUR ANALYSIS FOR POLICY

That said, there are at least two reasons to believe that the higher scrutiny of RFPs will not actually improve outcomes:

The MDAs may not be universally better at this. First, if the PMs aren't considered qualified to make these decisions anymore, then it's fair to ask whether the MDAs are. In theory, the political appointees are supposed to provide the adult leadership across Defense, ensuring that the career officers and mandarins in the individual military departments don't pursue pet projects to the ends of the Earth (and on borrowed money at that). In theory, the MDAs will sniff

Defense-Industrial Research Memorandum 2011-01 Hasik Analytic LLC

page 2 of 5 29 July 2011

2 DoDI 5000.02 (8 Dec 2008) encl. 2, §6c(4); and 10 USC 2366b

3 This last point was already required by 10 USC 2366b, if that ever mattered.

4 I am thinking here, of course, of Benjamin Braddockʼs marriage proposal to Elaine Robinson.

out the bogus plans or draft RFPs before they head out the door, because a bogus RFP will often solicit bogus proposals that lead to endlessly-funded zombie programs.

Perhaps the MDAs are up to the task. If they have the necessary military domain knowledge, the technical expertise, and the right sense of applied economics, they may be. Kendall's resume strongly suggests that he would be: West Pointer, MS in aeronautical engineering from Cal Tech, MBA from LIU, JD from Georgetown, VP of engineering at Raytheon, partner in a defense industry consultancy, etc. But there shouldn't be a strong presumption that all appointees will be of the same mettle. As noted above, we've seen plenty of MDAs sign off on one disaster of a program after another.

More oversight generally doesn't work. Moreover, any time an organization kicks a decision upstairs as a matter of general policy, it's transgressing a standard of subsidiarity: the idea that choices are best made as close to the problem as possible. That's not universally true, but in this matter there should be a strong presumption of validity. If the PMs are really a bunch of untrustworthy schmucks, then making them parade—now with draft RFPs firmly in hand—in front of the USD AT&L on Saturday afternoons until morale improves will not actually boost performance. They'll still be schmucks, though mercifully stripped of their Really Bad PowerPoint.

Rather, if the PMs really are that bad, then Defense needs a new corps of PMs. The trouble is that the USD AT&L himself has made clear that he's not interested in attempting cultural change. That's too hard, he recently said, so instead his principal deputy is altering the process and subjecting those PMs to more oversight. In sixty years of modern military systems acquisition, changing the process and adding oversight haven't really been a prescription for success.

Still, as I will observe at the end, this could work out well. The MDAs may not all be geniuses, and the PMs are certainly not all losers, but the broader perspective of the former may contribute to more fully thought-out RFPs. And there is definitely reason to be more hopeful about the peer reviews and the plea for an abandonment of the dog-and-pony shows. Peer reviews are not so much process-intensive oversight as sanity checks. If they catch pending epic failures, great; if not, then at least they will not have generated (in theory) more mountains of paper. The peer review mandate, signaled earlier during the appointment of Shay Assad as director of defense pricing, is arguably a continuation of a trend towards independent scrutiny begun in the reissue of DoDI 5000 back in 2008. Its mandate of rigorous analyses of alternatives could be used as an excuse for slow-rolling, and its reemphasis of competitive prototyping could be expensive, but at least those changes have been intended to shine some light sideways into potential messes.

OUR ANALYSIS FOR BUSINESS

But whether the outcomes improve or not, the process will most probably change, because process change is easy to monitor. Doing business with Defense in these early stages of the acquisition process will thus differ, and in at least four significant ways. Two concern product design, and two concern how you conduct your business-to-government marketing:



Innovative solutions may gain traction early on. Leadership in military acquisition really is needed, and while we'd like it at a lower level, it may indeed come from on high. If MDAs really do vigorously exercise that leadership, programs plans will more frequently be disrupted, at least early on, when disruption is less expensive, and admissions of failure less revealing of large sunk costs. Those changes may induce quick-marches in search of competitive alternatives, which the incumbent administration has held out as a potential salvation in the ongoing defense procurement Problem. This may lead to more flexibility for potential suppliers to offer unsolicited proposals, and thus open the door for greater innovation at lower cost. In short, a slight bias towards disruption may lessen the the natural advantage of incumbency by the more established companies in the industry.

Mature technologies and manufacturing plans may relatively gain favor. It is important to note that innovative does not necessarily mean unproven. The recombinant capacity of many modern military technologies has led to more than a few emergent advances from unexpected avenues. Consider the World Wide Web as an example: that transformation of the Internet was looming for years with the development of faster processors and bigger bandwidths, but no one really grasped what would happen until it suddenly appeared to us in the early 1990s.5 So, with money tight and early scrutiny rising, those MDAs may display a real preference for the art of the possible. In contrast to my immediately preceding observation, that change of heart would tend to favor incumbents, as they are the ones with proven designs and warm production lines. Think here of just how well Boeing has done with the Super Hornet in the past fifteen years.

You'll want to get to know your MDA early. Earlier reviews with tougher questions mean that you will need to sell your solution faster. Moreover, the target of that sales effort has now risen at least a pay grade, at least in those significant programs where the decisions cannot be delegated. In short, where you had previously glommed up to the PM or program executive officer, you will now need to influence the thinking of the USD AT&L or the service acquisition executive, or at least the important members of his staff. This means an earlier marketing effort more focused on attention inside the Beltway. Depending on the personal proclivities of your targets, your channels for marketing communications may change. You will want to know what media they consult, what social circles they frequent, and what forms of arguments they tend to accept—at least in as much as they differ from the tendencies of your PM. That's a tall order, so your business development people should get busy now.

Youʼll need to decide what kind of RFP you'd prefer. MDAs may indeed be thinking more analytically about the suitability of competition plans and incentive structures. PMs are supposed to do that, but most PMs don't see much more than their own programs. They learned some things in the Defense Acquisition University's short course, but generally they've not exactly done graduate work in market design, or spent years running repeat procurement competitions at Ford Motor Company. The MDAs and their higher-level staffs may bring more sophistication and perspective to the question than "competition!" or "fixed price!" If that looks likely in your next program—just judging from what you know about both the PM and the MDA—then you should think hard about the particular bases of competition on which you will excel, and start the process of influencing the government's thinking in that direction.



5 See John Alic, Trillions for Military Technology: How the Pentagon Innovates and Why It Costs So Much (Palgrave, 2007)

This memorandum is for private circulation and distribution, and is provided for information only. Hasik Analytic LLC makes every effort to use reliable, comprehensive information, but does not represent and cannot warrant that it is necessarily accurate or complete. The views in this publication are those of Hasik Analytic LLC and are subject to change without notice. At the same time, Hasik Analytic LLC undertakes no obligation to update its opinions or the information in this publication.

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