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Dr. Nancy SpruillDirector, Acquisition Resources & AnalysisOffice of the Under Secretary of Defense for Acquisition, Technology, and Logistics (OUSD(AT&L))
FY 16-17: Agency Priority Goal
Reform the Acquisition Process
Priority Goal
Goal Overview
Problem / Opportunity:
The DoD Better Buying Power initiatives begun in 2010, now in their third iteration, directed the acquisition professionals in DoD to not only deliver better value to the taxpayer and warfighter by improving the way DoD does business, but to achieve dominant capabilities through technical excellence and innovation.
Next to supporting the armed forces at war, this is the highest priority for DoD’s acquisition professionals. There is a continuing responsibility to procure the critical goods and services the U.S. armed forces need in the years ahead without having ever-increasing budgets to pay for them. It has taken years for excessive costs and unproductive overhead to creep into DoD’s business practices. The Better Buying Power Initiatives roadmap for addressing these problems includes targeting affordability, controlling cost growth, controlling cycle times, and promoting real competition.
Relationship to Strategic Goal and Objective:
This Priority Goal contributes to DoD achieving the Strategic Goal to Achieve Dominant Capabilities through Innovation and Technical Excellence and the Strategic Objective to improve acquisition process from requirement definition to execution phase and through lifecycle enhancement, to acquire and sustain military-unique and commercial items by including over 80 Major Defense Acquisition Programs and policies that enable over $250 billion in annual obligations by the Department of Defense. The scope alone covers a significant portion of DoD’s business.
Congressional Input (Relevant Highlights):
These initiatives support statutory compliance and give the taxpayer the greatest return for their money. The initiatives also provide accurate and timely decision-making information.
Key Barriers and Challenges:
Budget uncertainty is the greatest risk that can impact reaching our performance goals and measures. Stability and the ability to plan with reasonable budget projections are paramount. All of the improvements in performance of the acquisition system can easily be undone with the inefficiencies and vagaries of budgetary uncertainty and volatility. Yet, there is a continuing responsibility to procure the critical goods and services the U.S. armed forces need in the years ahead without having ever-increasing budgets to pay for them. The key internal challenge for DoD is to put each program on a sound footing from the beginning. The Acquisition workforce must understand and employ a variety of Better Buying Power tools to ensure solid programmatics at program inception and throughout execution. Through 2016, Quarterly Business Senior Integration Group (B-SIG) meetings continued with senior leader focus and attention on competition achievement to increase visibility and accountability. At these meetings, the Service Acquisition Executives attributed difficulties with achieving Service goals for competition rates to high value sole source foreign military sales and “Bridge” contracts that impacted competition achievement. Additionally, contracts for major non-competitive shipbuilding and aviation programs driven by historical strategic decisions made years ago continue to influence competition opportunities for the long term. These factors contributed significantly to the Department’s FY 2016 competition rate of 52.8 (last year’s report said 55.1) percent.
Mitigation Efforts:
DoD can guard against cost growth by ensuring a match between requirements and resources when the program baseline is established at program initiation or Milestone B. In other words, acquisition programs begin with mature technologies, adequate funding and personnel resources, and sufficient time to finish product development.
Also, requirements must be achievable given those resource constraints and must be agreed upon and remain largely intact throughout the product development phase. DoD must guard against so-called “requirements creep.” Furthermore, disciplined and constant oversight is needed. The Services and program managers (PMs) also need to overcome any shortcomings in staff capabilities to perform the kind of portfolio analyses and systems engineering tradeoff analyses that would strengthen DoD’s ability to understand and control future costs from a program’s inception.
Regarding competition, it is the single most powerful tool for reducing costs, and the most common reason for DoD noncompetitive awards is that one contractor is the only responsible source for the procurement. This occurs because the program has moved past the stage in the lifecycle where competition is economically viable. The Department continues to take steps to increase competition for major systems by introducing competition during the sustainment phase of a product's life cycle through the use of open systems and open architectures.
USD(AT&L) is undertaking additional analysis of FY 2014-2015 competition rates. For FY 2016, the Director of Defense Procurement and Acquisition Policy (DPAP), with Component input, will examine differing circumstances and projected competitive opportunities to enable more meaningful and achievable goals.
To prevent cost breaches and cycle time growth for newer MDAP programs, DoD has strengthened the front end of the acquisition process through new policy and procedural guidance. Release of the request for proposal for the Engineering and Management Development (EMD) Phase is the critical decision point in a program. The program will either successfully lead to a fielded capability or encounter problems based on the soundness of the capability requirements, the affordability of the program, and the feasibility of the program execution plan put into motion at that point. To increase emphasis on the importance of this decision, the USD(AT&L) has issued policy guidance establishing a new decision point, the Pre-EMD review, designed to ensure a comprehensive and effective discussion of program business arrangements and readiness to proceed to EMD before EMD source selection and Milestone B.
Strategies
The Better Buying Power Initiatives roadmap for addressing these problems includes targeting affordability, controlling cost growth, controlling cycle times, and promoting real competition.
For competition, there is renewed focus on continual improvement in competition achievements within DoD. In FY 2016, the USD(AT&L) will continue to emphasize the importance of maximizing opportunities for competitive contracting at quarterly Business Senior Integration Group meetings. Each Service Acquisition Executive will report on quarterly achievement and steps being taken to achieve the Service goal. The Services are also conducting engagements at the Component and Command levels wit the "Requirements," "Acquisition," and "Contracting" communities.
USD(AT&L) reset the competitive goal to: increase the amount of contract obligations that are competitively awarded from 57 percent for both FY 2016 and 57 percent in FY 2017. Component Competition Advocates were directed to address steps taken to improve competition and plans for continued improvement in FY 2017. AT&L’s Defense Procurement & Acquisition Policy (DPAP) continues to work with component competition advocates to identify areas that lend themselves to improved competition with procurement of services identified as a focus area. USD(AT&L) seeks to increase competition and small business participation in identified services portfolio groups.
To prevent MDAP breaches and reduce cycle time for newer programs, DoD has undertaken a number of improvement efforts. One key change is strengthening the front end of the acquisition process through new policy and procedural guidance. All programs must proceed into the process via a mandatory process entry point, the Materiel Development Decision. This will ensure programs are based on rigorous assessments of alternatives and requirements. Other changes that are designed to reduce technical risk are the requirements for a Preliminary Design Review and an independent review to certify the maturity of technologies before Milestone B.
The five Performance Measures that make up this Priority Goal provide a “snapshot” in time regarding a portion of the DoD Acquisition Process. These Performance Measures do not collectively describe an implementation plan. Rather, they show how the process is performing. Authoriitative sources on how Acquisition is performed within the DoD is covered under two DoD Issuances: DoDD 5000.1 and DoDI 5000.02.
Targeted Efficiencies:
DoD can quantify the amount of efficiencies and cost savings in FY15. AT&L expects some of each to result from APG achievement and full implementation of the Better Buying Power Initiatives. These initiatives support statutory compliance and give the taxpayer the greatest return for their money. The initiatives also provide accurate and timely decision-making information. The cost trends for MDAPs is improving: From +0.21% in FY14 to -0.41% in FY15 with no Nunn-McCurdy breaches in FY15 and flat schedule trends.
Key External Factors Affecting Achievement:
Budget declines are the greatest risks that can impact reaching our performance goals and measures. Stability and the ability to plan with reasonable budget projections are paramount. All the improvements in performance of the acquisition system can easily be undone with the inefficiencies and vagaries of budgetary uncertainty and volatility.
Progress Update
Recent data on MDAPs at the program- and contract-level have shown some statistically significant improvement trends in funding, price, and cost control, although complicating factors raise caveats and potential concerns.
More MDAPs are showing program funding reductions in both development and production. Relative to their original MS B baselines, more active MDAPs by proportion are estimated to have total RDT&E and unit-procurement funding reductions (sometimes referred to as “underruns”) as of 2015 than as of 2009—even after we remove relatively new programs that would be unlikely to currently show growth. The 2015 numbers are slightly lower than we saw last year in the 2014 data, but they remain significant. These data reflect similar results discussed below where biennial cost growth at the program level and the annual growth of contracted costs for MDAPs both have dropped significantly in recent years.
Lower biennial change in MDAP program funding for both development and production. In addition to measuring total growth against original baselines, we also measure biennial growth to monitor incremental (marginal) growth. Median biennial change in funding growth continues to be lower in recent years both on a program basis and when adjusting for the size of programs (i.e., on a dollar basis). In both program and dollar bases, biennial changes have been below 1 percent since 2011 for development and essentially zero or below since 2009 for procurement. These are measured using total program RDT&E funding and quantity-adjusted unit procurement (recurring unit flyaway funding), including past and needed future funding.
Lower recent rates of Nunn-McCurdy breaches. There have been statistically significant downward trends since 2009 of both non quantity-related critical breaches (shown) and all critical Nunn-McCurdy cost-growth breaches. 2016 did yield one Nunn-McCurdy with the Air Force’s The Global Positioning System (GPS) next-generation Operational Control System (OCX). The DAE, Secretary of the Air Force, acquisition chain of command, and prime contractor’s chief executive officer together are conducting quarterly “deep dive” reviews as a result of continued cost increases and schedule slips.
MDAP development contract length has grown slowly with system complexity. In comparison to program schedules, when examining development contracts for MDAPs we also see a cycle time of about 7 years. Historically, contract cycle time has grown since 1980 (when it was about 4 years and we had many large overruns on programs in the 1970s) through the 1990s (when it was about 5 years) to the present level of about 6.5 years since about FY 2002. These increases are commensurate with data from our prior reports and probably reflect increases in system complexity and capabilities over the last 35 years.
Schedule growth is declining on major MDAP contracts. In contrast to program-level data, major development contracts for MDAPs are showing a statistically significant decline since 1985. Our model also shows that any random deviations from this trend are corrected in later years, preserving the trend.
Acquisition workforce capability and quality improvements. Workforce professionalism is central to the performance of the defense acquisition system. With strong support from Congress, we have made strides in improving the capabilities, qualifications, demographics, and leadership of the workforce through various strategic initiatives. The workforce grew by about a quarter after FY 2008 when it was recognized that the DoD had serious deficiencies in this area. This growth was stopped as budgets declined after 2011, but since then the size of the workforce has remained roughly constant. Quantity (the number of people) alone is insufficient. We now focus on improving the quality, experience and professionalism of the workforce. The percent of the workforce lacking certifications has dropped from 14 percent in FY 2008 to 3 percent in the first quarter of FY 2016. We have reduced a significant shortfall in late mid-career staff through strategic hiring. Finally, board-certification has articulated and applied advanced quality standards for many categories of key acquisition leaders.
Acquisition Workforce Development. The DoD continues to increase the capabilities of our workforce, leveraging legislated authorities and funding such as the Defense Acquisition Workforce Development Fund (DAWDF) as well as the Force of the Future initiatives.
Contracted Services. A new DoD Instruction (DoDI) 5000.74 was issued in January 2016 to establish a management structure for the acquisition of contracted services while authorizing DoD Component decision authorities to tailor the procedures to best achieve cost, schedule, and performance objectives (USD(AT&L), 2016).
Affordability. We continue to apply and enforce affordability constraints on MDAPs and smaller programs, driving requirements tradeoff and management decisions during execution (see p. 99).
Source-Selection Procedures. A common set of principles and procedures for effectively conducting competitively negotiated source selections was updated in March 2016, including new guidance on Value-Adjusted Total Evaluated Price (VATEP) tradeoffs and appropriate uses of Lowest-Price Technically Acceptable (LPTA).
Incentive and Other Contract Types. A major guidebook update (DDPAP, 2016b) provides advice on the selection and negotiation of the most appropriate and effective contract type and incentives for a given acquisition situation, emphasizing how to apply judgment and tailor our contracting to improve outcomes and contractor performance.
O&S Cost Management. Published in February 2016, a new guidebook for PMs and product-support managers provides tools and best practices for O&S cost analyses to inform early life-cycle decisions, effect reliability trades, and identify Should-Cost initiatives having the greatest effect on future O&S costs.
Next Steps
Competition is the single most powerful tool for reducing costs. The most common reason for DoD noncompetitive awards is that a single contractor is the only responsible source for the procurement. This occurs because the program has moved past the stage in the lifecycle where competition is economically viable. The Department continues to take steps to increase competition for major systems by introducing competition during the sustainment phase of a product’s life cycle through the use of open systems and open architectures.
In FY 2016, DoD achieved a competition rate of 52.8% against a 57% goal. Competition will continue to remain a focus item at quarterly USD(AT&L) Business Senior Integration meetings. Early planning for and promotion of competition is required by the Senior Procurement Executives at the program/Program Executive Officer level. Acquisition workforce training through Defense Acquisition University’s continuous learning courses and symposiums as well as the respective Military Department and Defense Agencies training efforts is reinforcing the importance of competition and sharing successes achieved. During BSIG meetings, the Service Acquisition Executives are also highlighting planned or underway initiatives and providing updates on their efforts to improve competition.
Cost breaches and cycle time growth prevention. To prevent cost breaches and cycle time growth for newer MDAP programs, DoD will continue to strengthen the front end of the acquisition process through new policy and procedural guidance. Release of the request for proposal for the Engineering and Management Development (EMD) Phase is the critical decision point in a program. The program will either successfully lead to a fielded capability or encounter problems based on the soundness of the capability requirements, the affordability of the program, and the feasibility of the program execution plan put into motion at that point. To increase emphasis on the importance of this decision, the OUSD (AT&L) has issued policy guidance establishing a new decision point, the Pre-EMD review, designed to ensure a comprehensive and effective discussion of program business arrangements and readiness to proceed to EMD before EMD source selection and Milestone B.
Listen to feedback from the DoD’s professional acquisition leadership. The annual program manager (PM) assessments sent to the Defense Acquisition Executive provide useful perspectives on the realities of conditions where acquisition actually takes place—in program offices. Our PMs tended to be positive about strategy, system performance, program cost, and contracting (although the latter was raised often as both a success and issue). Conversely, funding difficulties, risks, and cyber issues top the list of concerns. Some topics have high levels of both success and problems—especially schedule performance, contractor performance, and the implications of changing technology.
Just as important, our program executive officers (PEOs) raised a number of broader systemic issues across their portfolios while making insightful suggestions on how we can improve the defense acquisition system. For example, the PEOs note that system improvements (e.g., savings) come at a cost—namely, we need sufficient workforce to think through and execute more efficient acquisition approaches. Blind “headquarter” or other cuts in government and contractor workforce can be extremely counterproductive.
Don’t neglect suitability (reliability, maintainability, etc.) in pursuing system performance. Operational tests show that major programs are often effective when they tested as operationally suitable, but the converse is not true. This correlation by itself does not prove causality, but it reinforces the logic that the so-called “-illities” (e.g., interoperability, availability, maintainability, reliability) are important to achieving the mission. For example, well-engineered systems that address suitability factors are probably also better positioned to be effective. Also, no matter its features, a weapon system may not serve its function if it is unreliable and unavailable to the warfighter.
Don’t neglect O&S cost implications in early system requirements and design. Analysis shows that many of the factors that correlate with growth of Major Weapon System O&S cost estimates (i.e., wages, health-care costs, and fuel prices) are outside of program management control. While PMs cannot control these external factors, they can affect fuel efficiency and maintenance costs (e.g., system reliability, ease of maintenance, and repair automation). Usually, these aspects must be addressed very early in the system’s design, so don’t neglect them in early program planning and management. That is why the new affordability process sets goals and caps on life-cycle costs early in the program’s life (e.g., at the point of the Materiel Development Decision (MDD) and MS A, when bigger design changes can be made). Don’t neglect them just because you cannot control the external factors and uncertainties remain.
Focusing on acquisition fundamentals and cost control makes a difference. Proactive management and creative thinking contribute significantly and measurably to cost control. Multiple measures and analyses in this and prior annual reports show that fundamentals work in controlling costs. We need to keep up the good work. These savings are dependent on workforce expertise, sufficiency, empowerment, and demonstrating results with objective analysis. The institution of “should cost” management and its consistent emphasis over the last 6 years by the acquisition chain-of-command has been a success and should be a permanent feature of the DoD’s acquisition culture. Staying within budget is not the definition of success.
Don’t let up on ensuring rigorous source selections that align government value structures, source-selection rules, and industry’s goal of winning. While GAO data on source selections provide encouraging news that our practices generally are fair and rigorous, we should not let up on efforts to improve source selections. The basic integrity and fairness of our processes are fundamental to maintaining public confidence in how taxpayer resources are spent.
Expand All
Performance Indicators
Cycle Time
MDAP Breaches
Cost Growth
Competitive Contract Obligations
Levels II and III certification
Contributing Programs & Other Factors
Better Buying Power Initiatives:
DoD’s Better Buying Power initiative continues to be the heart of reforming the Acquisition Process. To improve the efficiency and effectiveness of the Department's acquisition processes, the USD(AT&L) issued the Better Buying Power (BBP) initiatives, which will enable the DoD to deliver better value to the taxpayer. Importantly, the BBP initiatives will help to minimize cost growth in the highly visible Major Defense Acquisition Programs (MDAPs), as well as efficiently procure other needed goods and services. There have been three issuances of the BBP. The focus of the first two issuances was on affordability, cost control, improving the acquisition workforce, and promoting competition. While we continue this focus, the third issuance adds a focus on technological superiority. The initiatives of the first two BBP issuances include: Achieve affordable programs; Achieve dominant capabilities while controlling lifecycle costs; Incentivize productivity in industry and government; Incentivize innovation in industry and government; Eliminate unproductive processes and bureaucracy; Promote effective competition; Improve tradecraft in acquisition of services; and Improve the professionalism of the total acquisition workforce.
In the Agency Priority Goal for FYs 2016-17, the Department will monitor annual progress against the BBP Initiatives by measuring cost breaches in the Major Defense Acquisition Programs not caused by approved changes in quantity. Quarterly collection of data will reflect assessments of the anticipated annual percentages.
BBP 3.0 continues the emphasis on small businesses with an increased focus on identifying more opportunities for small businesses. “Should Cost” Management receives systematic emphasis throughout the program life-cycle. Should Cost is a management tool designed to proactively target cost reduction and drive productivity improvement into programs. It challenges program managers to identify and achieve savings below budgeted most likely costs. The objective is to seek out and eliminate low-value added or unnecessary elements of program cost, to motivate better cost performance wherever possible, and to reward those that succeed in achieving those goals. Affordability and investment analysis has been institutionalized to drive program affordability and enforce affordability caps. Affordability analysis will examine competing Component fiscal demands for production and sustainment within a relevant portfolio of products to reveal the life-cycle cost and inventory implications of the proposed new products within the portfolio. However, when program schedules are stretched due to overall affordability constraints, program costs will likely increase.
Partners (Agency Internal and External):
The Military Services and Defense Agencies have ample opportunities to coordinate amongst themselves at all phases of weapon system acquisitions through formal decision processes such as Milestone A, B, and C decision reviews. Overarching Integrated Product Teams, budget issue teams, and other formal and ad hoc mechanisms have been established to address stakeholder equities. In addition, the USD (AT&L) chairs the monthly BSIG meetings that brings together Acquisition leadership from across the Services and Agencies to implement and support Better Buying Power.
Congress is an active participant in the DoD Acquisition Process, starting with the submission of the President’s Budget. Iterating with DoD, Congress refines and adjusts the President’s Budget through the National Defense Authorization Act and Appropriation processes. In addition, Congress provides periodic direction to DoD through out-of-cycle legislation such as Weapon Systems Acquisition Reform Act (WSARA) of 2009 (Public Law 111-23).
The entire Defense Industrial Complex is an active participant in the Defense Acquisition Process. Participants include corporations that build satellites and missiles all the way down to the small business that make nuts and bolts in the supply chain. To ensure the lines of communication are open with our Industry partners, the USD (AT&L) holds quarterly meetings with the Chief Executive Officers of the largest 6 Defense Contracting Corporations. In addition, each of the Military Services are expected to also engage with the commercial sector to ensure that there is consistent communication.
Other countries are key partners with DoD. They participate in international cooperative programs, which are acquisition programs or technology projects that include participation by one or more foreign nations, through international agreements, during any phase of a system's life cycle. The key objectives of international cooperative programs are to reduce weapons system acquisition costs through cooperative development, production, and support; and to enhance interoperability with coalition partners.
The U.S. has entered into cooperative programs with other nations for selected MDAPs. The largest international cooperative program is the Joint Strike Fighter (F-35), which has eight international partners.
No Data Available
