Analytical Memo
- 1. 1 Executive Summary This memo examines the nature of contracting in the DoD by using the March 2019 report from the GAO, Defense Acquisitions: Information on Workforce, Organizational, Structure, and Budgeting for Selected Programs. It provides solutions to address issues of best practices concerning the long term cost and internal knowledge over time. It focuses on personnel and organizational structure only and does not focus on contracting procurement for goods since this memo is derived from the GAO document. Through this lens, it identifies issues with the budget structure, the organizational needs, and responses along with misconceptions. The methods discussed include traditional contracting, AGILE hiring/management and the use of FFDRCs. Ultimately, it concludes that in the current climate, utilizing FFDRCs may be the most prudent option.
- 2. 2 TO: Patrick M. Shanahan, Acting Secretary of the DOD FROM: Rose Anthony DATE: April 29, 2019 RE: Addressing the DoD’s Defense Acquisitions Policy Summary As the largest department and a foundational one, it is unsurprising that the Department of Defense (DoD) accounts for a substantial amount of the federal budget. The budget for the current fiscal year is $686.1 billion and a significant amount of this budget is used to “develop,1 produce, and field” weapon systems through various defense acquisition programs. According to internal department estimates, “82 major defense acquisition programs would cost over $1.69 to develop and procure” . This acquisition process should be reviewed both as a matter of fiduciary2 responsibility for taxpayers as well as a national security issue. This memo provides best practices for more efficient contracting for DoD’s defense acquisition programs by reviewing a March 2019 report from the the Government Accountability Office (GAO). Background 1 Norquist, D. (2018). Defense Budget Overview: United States Department of Defense Fiscal Year 2019 Budget Request (p. 116). Retrieved April 29, 2019, from https://dod.defense.gov/Portals/1/Documents/pubs/FY2019-Budget-Request-Overview-Book.pdf 2 DiNapoli, T. (2019). Defense Acquisitions: Information on Workforce, Organizational, Structure, and Budgeting for Selected Programs (p. 1). The Government Accountability Office.
- 3. 3 Senator James Inhofe, chairman of the Committee on Armed Services, and Senator Jack Reed, ranking member of the committee, request GAO to review “how military departments meet program personnel needs and how DoD budgets for the costs associated with these personnel” . GAO reviewed the organizational structure and personnel allocations for eleven3 programs focusing on the newest planned and allocated in the Air Force, the Army, and the Navy. The three main categories they chose to focus on where the size of the staff, the composition of talent and the mix of personnel. DoD personnel consists of military employees, civilian/government employees, and contractors. The latter, contractors, are used frequently in the Department, which was primarily due to the flexibility and expertise they provide. The GAO found that contractors were cheaper to use than military personnel for short term programs. Civilian employees require the most investment since they require a longer on-boarding process and are often a permanent fixture; in higher cost of living areas, it is especially hard for the DoD to attract civilian workers. The DoD frequently relies heavily on contractors to provide technical knowledge when building weapon systems. GAO noted that in December of 2015, the DoD did not have enough personnel to complete engineering tasks . This lack of adequate personnel for4 programs is not just limited to programs technical capacities but also seen in overall staffing. GAO noted that “the B-2 Defensive Management System Modernization program estimated it needs 82 personnel in FY2018 but was allocated just 13 people” . This allocation imbalance is5 partially due to the DoD operation process which allocates civilians by the risk factor in each program but also due to the current budget structure. Although the DoD frequently knows the contracting needs for programs beyond the fiscal year, this is not taken into account in the 3 DiNapoli,1. 4 DiNapoli,14. 5 DiNapoli,14.
- 4. 4 program cost overview . Additionally, the type of personnel (military, civilian or contractor) is6 shown in different parts of the budget. The cost of military personnel is included in central operating budgets for all branches, while the cost of contractors is included in program costs in all branches. The cost of civilian employees is included in the operating cost in the Air Force but in both the operating costs and personnel costs for the Army and Navy . Lastly, the report7 mentions the use of federally funded research and development centers (FFRDC) to staff Space and Missile system programs for the Air Force; FFRDCs were not used in the other ten programs examined. Analysis The use of contractors in the DoD reflects the current state of government reliance on the private sector. Though this provides the DoD the ability to gain the technical know-how to build weapons at a lower cost and the flexibility to change personnel according to national needs, reliance on contractors is tricky given the mandate of the Department. As a matter of national security, the Department must balance efficiency of spending allocated resources, speed of building and updating new weapons systems and security of national manpower and systems by all personnel. Although the GAO report focuses on only eleven programs, a relatively small sample size to indicate endemic issues in the Department, the fact that these programs were recently developed indicates possible issues in the structural process of developing and executing these programs. For example, all programs indicated difficulty in tempting technically adept civilians away from public sector counterparts who would often pay a salary that would match 6 DiNapoli,14. 7 DiNapoli,20.
- 5. 5 the cost of living. Additionally, the programs were restricted by sluggishness in the hiring process due to a rigid on-boarding process that leads them to favor contractors and military personnel . However, although contractors are an adept solution for the short term, it is found8 that over the long term, civilian employees are often more cost-effective for programs. This is because of contractor fees, which are higher than the cost of civilians, are included in the program costs while the use of military personnel can be a resource drain if the program is not sensitive or urgent. Long term programs may need more oversight of contractors especially since the likelihood of these contractors handling sensitive data increases. The expertise generated by contractors remains untapped by the Department unless the contractors are from an FFRDC. This due to the fact that even though FFRDCs are operated largely through contractors, the main focus of these centers is to provide objective research on “technology, system acquisition, and policy guidance” on the center’s expertise. They are independent of both the Department, thereby free from politics, and the public sector since they have a strict non-compete act that prevents them from creating marketable products . This separation allows the public sector more9 access to technology without the risk to national security. Currently, the budget system and the operating system favors general contractors as both a short term and long term solution, a decision that would not be in the nation’s fiscal interest for the long term. Options 1. Traditional Contract System: This system allows the Department to hire contractors when needed to fill personnel positions quickly and to provide technological expertise. With the current system, DoD heads do not have to calculate the overall cost of 8 DiNapoli,15. 9 (2015). FFRDCs—A Primer (p. 56). Mitre Organization. Retrieved April 29, 2019, from https://www.mitre.org/publications/all/ffrdcs-a-primer
- 6. 6 contractors for the entire span of the program, which they often have to do for civilian personnel making contractors seem more appeals. As a private sector entity, contractors can be fire more easily since they do not have the same protections as federal employees. Additionally, they do not have to be provided with federal pensions. These characteristics make hiring contractors seem less risky than civilian employees since they often do not need to spend resources upfront. They also allow contractors to quickly flow through stages of defense acquisition and be applied when needed. However, contractors cost more overtime and often require more oversight to ensure proper measures are being taken to complete tasks efficiently and effectively. Furthermore, contractors are hired on project bases, so expertise may not be passed along to newer employees and more effective processes would not be formalized. Moreover, even though programs may share similar resources unless contractors for these programs are assigned to the same portfolio, there is no guarantee that practice like sharing resources to limit waste would be implemented. 2. AGILE Management/Hiring System: AGILE is a process that arose through software development. Instead of allocating time to find issues in products, developers would focus on providing quick solutions to issues that users found. By allowing the majority of product testing to be done by users, it created a collaboration between creators and users that, in the end, created a better-developed product . The AGILE method is used for10 10 Franco, E. (2017, August 19). Agile Procurement For The Public Sector. Public Spend Forum. Retrieved April 29, 2019, from https://www.publicspendforum.net/blogs/emilio-franco/2017/08/19/agile-procurement-public-sec tor/
- 7. 7 procurement in the private and public sector because of its flexibility. It focuses on collaboration, individuals/interactions, and real-time responses. Using the proponents of the AGILE method, the Department can create a more fluid hiring structure that allows programs to use contractors but transition over to more cost-effective full-time workers. For example, a short term program of two years might favor using contractors but if that program was to be expanded to ten years, then an AGILE hiring system would allow management to locate the best civilian candidates and transition the program over to them in the mid stages of the program, five years and onwards. This system would require a large amount of energy from management to facilitate the new hires into both the Department and the ongoing process. However, in the long term, it would allow the Department to keep necessary technical skills that they anticipate needed in the long term. It would also require project managers to be incentivized to check the progress and efficiency of programs under their scope. 3. Increase FFRDCs: Nine of the eleven programs examined were managed through a portfolio structure due to a combination of three reasons. Programs had “related acquisition structures”, “interrelated technologies” and were “part of the same weapons systems platform” . The traditional defense acquisition process is a multiphased process11 that includes: “technology maturation & risk reduction, engineering & manufacturing development and production & deployment” . In the traditional process, the need for12 personnel in these areas fluctuates depending on the program timeline, which makes 11 DiNapoli,17. 12 DiNapoli,5.
- 8. 8 hiring traditional contractors more effective. However, if the DoD increased the number of FFRDCs this would not necessarily be the case since these center could systematically and constantly examine risk reduction, technology maturation or any other developmental analysis. Establishing these FFDRCs would be more pricey than hiring more civilian employees since but it is more politically feasible since it would not cut out the public sector entirely causing massive increases to personnel spending for the Department. Additionally, FFDRCs tend to have higher salaries with constant funding for research which would attract the brightest minds. As a public-private partnership, these centers would allow the Department to have access to technical expertise over a larger period of time, which in turn would increase the Department’s knowledge of newer technology in order to make better decisions as well as have employees who are familiar with newer and older systems. Additionally, the objective and isolated nature of FFDRCs would ensure the security of defense systems and limit the need for as much oversight as traditional methods of contracting. Recommendation The reliance on traditional contractors for the Department limits future growth and technological development since this personnel type was originally created as a temporary mechanism for the Department to gain expertise and manpower quickly but for short periods of time. To immediately address the issue of limiting the DoD’s reliance on traditional contractors, I would
- 9. 9 recommend applying option 2. This is primarily because this system utilizes some current systems like using private resources but through a more sustainable period of time. Word Count: 1760