Defense Acquisition Reform, 1960–2009 An Elusive Goal By J. Ronald Fox with contributions by David G. Allen Thomas C. Lassman Walton S. Moody Philip L. Shiman CENTER OF MILITARY HISTORY UNITED STATES ARMY WASHINGTON, D.C., 2011 Acqui Book.indb 1 1/10/12 10:26 AM Library of Congress Cataloging-in-Publication Data Defense acquisition reform 1960–2009 : an elusive goal / J. Ronald Fox ; contributions by David G. Allen ... [et al.]. p. cm. Includes bibliographical references and index. 1. United States—Armed Forces—Procurement—History—20th century. 2. United States—Armed Forces—Procurement— History—21st century. 3. United States—Armed Forces—Weapons systems—Purchasing. 4. United States. Dept. of Defense— Procurement. I. Fox, J. Ronald (John Ronald), 1929– II. Allen, David Grayson. UC263.D368 2011 355.6’2120973—dc23 2011042992 First Printing CMH Pub 51–3–1 Acqui Book.indb 2 1/10/12 10:26 AM CONTENTS Page Foreword ............................................ vii Principal Author ...................................... ix Preface .............................................. xi Chapter 1. The Defense Acquisition Process .................. 1 The U.S. Defense Establishment . 1 Major Weapon Systems . 5 Defense Acquisition Historical Perspective............ 7 Defense Acquisition Versus Commercial Operation ..... 12 Government Acquisition Regulations ................ 13 Participants in Defense Acquisition ................. 14 Defining New Defense Systems ..................... 15 Congressional Authorization and Appropriation ....... 19 Stages in the Acquisition Process ................... 20 The Transition Between Phases .................... 28 Selecting a Contractor ............................ 29 Controlling Schedules and Costs . 30 The Basis for Profits . 31 Limited Rates of Production ....................... 32 Limitations of Government Program Managers ....... 33 2. Defense Acquisition Reforms in the 1960s and 1970s ... 35 Acquisition Reform During the 1960s—The McNamara Innovations .................................. 35 The Transition from Robert McNamara to Melvin Laird .. 40 Deputy Secretary of Defense David Packard . 43 Secretary Laird Creates the Blue Ribbon Defense Panel (1969) ..................................... 45 Defense Systems Acquisition Review Council ........... 47 Industry Advisory Council ........................... 49 Packard Confronting Resistance . 53 Pushing Against Inertia . 58 The Blue Ribbon Defense Panel Issues Its Report (1970) .. 62 Consolidating Gains . 69 Codifying the New Acquisition Process—DoD Directive 5000.1 .................................. 73 iii Acqui Book.indb 3 1/10/12 10:26 AM Chapter Page Leadership in the Post-Packard Era . 79 The Congressional Commission on Government Procurement .................................. 82 Office of Federal Procurement Policy ................ 84 Procurement of Research and Development .......... 88 Reforming Requirements . 91 Legislating Reform . 93 Office of Management and Budget Circular A–109 ..... 95 3. The 1980s: The Carlucci Initiatives and the Packard Commission ........................... 97 Setting the Stage: PPBS and the Cycles of Weapons Acquisition Reform . 100 From PPBS to the Acquisition Improvement Program .... 106 AIP in Action: Implementation and Execution ........ 115 Responding to Charges of Fraud, Waste, and Mismanagement .............................. 120 The Packard Commission, 1985–1989 . 125 Under Secretary of Defense for Acquisition ........... 132 The Battle for Control of Weapons Systems Acquisition . 142 The Legacy of 1980s Weapons Acquisition Reform ..... 146 1980s Retrospective .............................. 149 4. Acquisition Reform from 1990 to 2000 .............. 151 A Mandate for Change . 153 Organizing the Reform Process . 154 Tools for Reform ................................. 158 The Broad Reach of Reform . 165 Changing the Acquisition Process .................. 175 Results of 1990s Acquisition Reforms ................ 180 Views of Army Headquarters Personnel ................ 183 Views of the Army Program Management Community .................................. 184 What Has Been Good About Acquisition Reform? ........ 185 What Has Been Bad About Acquisition Reform? ......... 185 Summary of Rand Findings . 187 5. Conclusions...................................... 189 The Defense Marketplace . 193 Relationships Between Government and Industry ..... 194 Reexamining the Program Manager Concept ......... 198 Differing Perceptions of Defense Acquisition .......... 200 iv Acqui Book.indb 4 1/10/12 10:26 AM Page Government and Contractor Incentives . 203 The Need for Extended Follow-up Actions .............. 205 Appendixes A. Four Acquisition Reform Studies Conducted from 2001 to 2009 ...................................... 209 B. Changes to the Acquisition Process, DoD Directive 5000.1, 1971 to 2008 ........................ 221 C. Carlucci Thirty-Two Acquisition Reform Initiatives, 1983 ................................... 229 D. Rand Corporation Study of Sixty-Three Acquisition Reform Initiatives, 2002 ................... 231 Abbreviations and Acronyms ............................ 235 Selected Bibliography .................................. 241 Index ............................................... 255 Tables No. 1. Defense Outlays, FY 1950–FY 2008 ................... 2 2. DoD’s Budget Authority by Component . 3 Figures 1. Total Federal Outlays: Non-Defense and Defense . 4 2. The Defense Acquisition Management System . 24 3. The Systems Acquisition Process . 57 v Acqui Book.indb 5 1/10/12 10:26 AM Acqui Book.indb 6 1/10/12 10:26 AM FOREWORD Defense acquisition reform initiatives have been Department of Defense perennials over the past fifty years. Yet reforming the acquisition process remains a high priority each time a new admin- istration comes into office. Many notable studies of defense acqui- sition with recommendations for changes have been published, and each has reached the same general findings with similar recommendations. However, despite the defense community’s in- tent to reform the acquisition process, the difficulty of the prob- lem and the associated politics, combined with organizational dynamics that are resistant to change, have led to only minor improvements. The problems of schedule slippages, cost growth, and shortfalls in technical performance on defense acquisition programs have remained much the same throughout this period. The importance of the Department of Defense’s huge acquisi- tion projects over the years cannot be overstressed. The United States has often turned to cutting-edge technological solutions to solve strategic and operational challenges. To highlight the im- portance of acquisition issues, the Department of Defense began a project in 2001 to write a history of defense acquisition from the end of World War II to the start of the twenty-first century. The U.S. Army Center of Military History served as the executive agent for that project until funding was effectively withdrawn in 2009. Two volumes of that history are nearing publication, which will take the story up to 1969. To capitalize on essential informa- tion on defense acquisition reform initiatives from the three un- published draft volumes covering the period from 1969 to 2000, the Center decided to publish extracts from those volumes, with additional analysis by J. Ronald Fox, a subject matter expert on acquisition and an adviser to the project. Much of chapter two of this acquisition reform study was written by Walton S. Moody and David G. Allen for their draft Volume III (1969–1980) of the Defense Acquisition History Project and then edited, analyzed, and augmented by Fox. Similarly, most of chapter three was tak- en from Thomas C. Lassman’s draft chapters three and five of his Volume IV (1981–1990), and much of chapter four was written by Philip L. Shiman as chapter eight of his Volume V (1991–2000) of the Defense Acquisition History Project. Fox was able to take their chapters, provide additional analysis and insights, and con- solidate and edit them with his own work to prepare this impor- tant volume focusing on defense acquisition reform. This volume vii Acqui Book.indb 7 1/10/12 10:26 AM is the result of all of their research and writing efforts and their collective insights into an incredibly complex system. Professor Fox’s Defense Acquisition Reform, 1960–2009: An Elusive Goal, provides valuable historical analysis of the numer- ous attempts over the past fifty years to reform the defense acqui- sition process for major weapons systems. It identifies important long-term trends, insights, and observations that provide perspec- tive and context to assist current defense decision makers, acquisi- tion officials, and the acquisition schoolhouse. It is an important work on an important subject that continues to defy solution. Washington, D.C. RICHARD W. STEWART 31 October 2011 Chief Historian viii Acqui Book.indb 8 1/10/12 10:26 AM PRINCIPAL AUTHOR J. Ronald Fox is a member of the Harvard Business School faculty where he chaired the General Management Area. His re- search deals with the management of large engineering and con- struction projects and defense acquisition. He taught courses in project management, competition and strategy, defense and aero- space marketing, and business-government relations. He holds a bachelor of science in physics, cum laude, from Le Moyne College, and a master of business administration and Ph.D. from Harvard University. Fox served as assistant secretary of the Army in which he was responsible