Big Contracts, Big Problems

Lead systems integrators are in the hot seat as major programs flounder.

What a difference a few years make. Five years ago, with great optimism, the Coast Guard let the largest contract in the agency's history to overhaul its fleet of aircraft, boats and cutters, and tie all those assets together with a communications system that would promote efficiency and effectiveness. The same year, the Army let an equally expansive contract to develop suites

of ground, air and robotic weapons, linked by a communications system that would lift the fog of war and dramatically improve battlefield operations.

Today, both the Coast Guard's Deepwater contract and the one for the Army's Future Combat Systems are under fire for cost and schedule overruns and performance problems. In both cases, the agencies turned to lead systems integrators to manage complex multibillion-dollar programs that were to extend over decades. While the programs have very different technical requirements and different contractors-Deepwater is managed jointly by a consortium created by Lockheed Martin Corp. and Northrop Grumman Corp. called Integrated Coast Guard Systems; Future Combat Systems is managed jointly by Boeing Co. and SAIC-they've experienced similar problems. In both cases, government auditors say the agencies have failed in their oversight roles and given contractors too much leeway in determining requirements, selecting suppliers, managing subcontractors and validating performance, things traditionally done by government employees.

The Coast Guard and the Army aren't the only agencies turning to LSIs to manage large, complex programs. NASA "partnered" with United Space Alliance to manage the space shuttle program. Defense turned to Boeing as lead contractor on the National Missile Defense Program, and the Air Force turned to Booz Allen Hamilton to manage its Transformational Communication System.

Homeland Security, the Coast Guard's parent department, also has turned to Boeing to manage SBInet, a $2 billion effort to create a "virtual fence" along the border. The contract, which initially guarantees Boeing $67 million over three years but which auditors say could eventually cost as much as $30 billion, puts the contractor in charge of integrating sensors, cameras and other equipment to improve the Border Patrol's capabilities.

All these contracts are huge and technologically complex. They strive to create what Defense calls "interoperability"-the ability to share data seamlessly across disparate platforms manufactured by different contractors, says Eugene Gholz, a defense industry expert and assistant professor at the University of Texas Lyndon B. Johnson School of Public Affairs in Austin.

Americans place great and sometimes undeserved faith in technology and private sector management, Gholz says. "It's part of our culture. We tend to think the private sector does a lot of things better. That may or may not be true." Contracting trends are cyclical, he says, and the use of lead systems integrators today is not very different from a similar concept called Total Package Procurement promoted by then-Defense Secretary Robert McNamara in the 1960s. The idea was that by bundling contracts and giving contractors a lot of discretion, they would manage more efficiently and effectively, he says. "It didn't turn out to be true then, and it isn't true now."

"The truth is, everyone lacks this capacity," Gholz says. He predicts a return to smaller, more manageable contracts in the future, with more realistic expectations for what technology can and cannot accomplish.

Increased Risk

Government Accountability Office chief David M. Walker told the Senate Homeland Security and Governmental Affairs committee in July that agencies' reliance on lead systems integrators increases risk by complicating the relationship between government and contractor. The risk, Walker said, stems from the fact that the contractor is given greater discretion to make program decisions. "Along with this greater discretion comes the need for more government oversight and an even greater need to develop well-defined outcomes at the onset."

Walker said GAO had been concerned about the Coast Guard's acquisition approach to Deepwater from the onset, precisely because such oversight was lacking, noting that the agency had not held the integrator accountable for achieving competition among Deepwater suppliers.

"On the other hand, a close partner-like relationship such as the one the Army has with its Future Combat Systems integrator can also pose risks," Walker said. "Specifically, the government can become increasingly invested in the results of shared decisions and run the risk of being less able to provide oversight compared with an arms-length relationship."

Cost overruns, performance problems and slipped schedules are hardly unique to LSI contracts, and they even can count some successes. Engine upgrades to key helicopters performed under Deepwater proved their worth during the Coast Guard's Gulf Coast rescue operations following Hurricane Katrina and likely resulted in the agency's ability to save many more lives than it otherwise would have with less capable aircraft. Also, maritime patrol aircraft and several patrol boats have been delivered on schedule with few hitches.

The Army in July approved early production planning for FCS Manned Ground Vehicles and spin-out technologies that are to be incorporated into the current force beginning next year, a decision that shows "FCS technologies are maturing according to plan and represent a crucial step toward meeting program production objectives," said Dennis Muilenburg, vice president and general manager at Boeing Combat Systems and the FCS program manager, in a statement.

And DHS officials believe they have learned from past mistakes, and their newest LSI effort, SBInet, will be a model for future integration endeavors. "I am frequently asked if SBInet will turn into a Deepwater problem," Undersecretary for Management Paul Schneider said at a June 7 hearing before the Senate Homeland Security and Governmental Affairs Committee. "The answer is unequivocally 'no.' "

For one, SBInet program staff will not share office space with contractor employees. Gregory Giddens, the SBInet program manager who was the deputy program executive officer for Deepwater, lists several other major differences from the Coast Guard program. The SBInet acquisition forces Boeing to compete task orders, prohibiting contractual arrangements in which subcontractors automatically receive certain kinds of work. The contract also includes off-ramps that would allow DHS to discontinue the project if it does not approve of Boeing's work, and makes clear that DHS can acquire certain solutions from a vendor besides Boeing.

Also, the acquisition does not call for the purchase of large capital assets, and instead will employ a collection of currently available technology. "One of the lessons we learned is, when we put out the request for proposals and evaluated the bids, we actually looked not to get cutting-edge Star Wars-types of proposals, but proven technology that has actually been deployed in the field," Homeland Security Secretary Michael Chertoff said at a Feb. 8 House Homeland Security Appropriations Subcommittee hearing.

Additionally, the Army will conduct an independent assessment of SBInet's interim operating capabilities at the end of the project's first initiative. That is one reason why Schneider told senators that SBInet is a model for how spiral acquisition and risk reduction ought to be done. "Because this is a modular and scalable architecture, we will be in a position to make important trade-offs on performance, risk and total system cost very early," he said. "All this in less than one year after this contract was awarded."

The only problem is that the first initiative, known as Project 28-for the 28 miles of Arizona border along which Boeing has built a wireless network, nine towers with cameras, sensors and radar and other communication equipment-is already behind schedule. The delays were not announced until a day after the June 7 hearing, angering lawmakers. The department has not announced an expected completion date. DHS officials say it is better to delay now to fix technological glitches than to push forward to meet the early deadlines.

Workforce Problems

While good historical data on acquisition staffing is lacking, "It is clear that the size of the workforce has declined, while the size of government expenditures for goods and services has risen significantly," Walker said. The Congressional Re-search Service reported in March that the Defense acquisition workforce was cut by more than half between 1994 and 2005. Not only is staff shrinking, but the complexity of the systems being acquired is growing, which further contributes to the lack of in-house expertise, CRS noted.

The Army and the Coast Guard turned to systems integrators for essentially the same reason-the services lacked the expertise and staffing to manage the complex programs themselves. Among the workforce challenges Walker cites are:

• Key program staffers rotate too
• frequently, promoting myopia and reducing accountability.
• The revolving door between industry and government creates potential conflicts of interest.
• There is insufficient oversight for recurring and systemic problems.
• A lack of high-level attention reduces the chances of program success.

The Defense Department's 2007 Acquisition, Technology and Logistics human capital strategic plan seeks to counter that trend with a multiyear effort that establishes goals and objectives to determine needed skills and expertise, builds the workforce accordingly, provides continuous training and keeps the most talented and experienced people from leaving for the private sector.

Agencies always will have trouble attracting and hiring the people they want in acquisition, Gholz says. The private sector always will be able to offer more money. And for agencies such as the military services, where contracting debacles can spell disaster on the battlefield, the acquisition workforce always will be viewed with less than complete trust. But agencies can look for expertise outside their own workforces. Independent and federally funded research and development centers can and do provide valuable advice. "You don't need these experts to all be government employees-they just need to be different from the people selling," says Gholz.

Action on Capitol Hill

Faced with the shadow of the Deepwater debacle and the rising cost overruns that have plagued the Army's Future Combat Systems, legislators recently stepped in to try to prevent the Defense and Homeland Security departments from using lead systems integrators. A provision in the 2008 House Defense authorization bill would prohibit the Pentagon from awarding any new contracts for LSI functions in the procurement of major systems as of Oct. 1, 2011. The amendment, sponsored by Duncan Hunter, R-Calif., ranking member of the Armed Services Committee, and Gene Taylor, D-Miss., chairman of the Subcommittee on Seapower and Expeditionary Forces, directs Defense to replenish its depleted acquisition workforce over the next four years to offset the talent and management gap that will be left by excising LSIs. The Defense secretary also must submit a plan by Oct. 1, 2008, "establishing the appropriate size of the acquisition workforce to accomplish inherently governmental functions."

"The problem [with LSIs] is that you are taking someone who is profit-driven and throwing them the keys to the enterprise," Taylor says. "So, instead of rewarding them, we are taking these projects and moving them back in house."

House officials insist the provision is not intended to affect current Pentagon LSI efforts. Future Combat Systems and the National Missile Defense Program, along with the Air Force's Transformational Communication System, appear safe unless the contracts are put up again for competitive bidding. Sources familiar with the bill, however, say the language is loose enough that the Pentagon could interpret it more broadly.

Defense officials declined to comment on the legislation, but the White House says the LSI provision, along with others in the bill that limit the length of noncompetitive contracts and maximize the use of fixed price procurements, are "counterproductive and not of practical help in strengthening the acquisition process."

The Senate's version of the bill addresses cost overruns, oversight and performance requirements for major Defense weapons systems, but does not directly address LSIs, and it's unclear whether the chamber will endorse a complete ban on their use. In fact, the Senate bill rebukes an effort by the House to cut more than $860 million from FCS to rein in its cost.

If the lead systems integrator approach appears on shaky ground within Defense, it may be on life support at Homeland Security. While the House allocated full funding for SBInet, the chamber's Deepwater Program Reform bill requires the Coast Guard to dump the Lockheed Martin-Northrop Grumman team by no later than October 2011, while the Senate would allow only for the completion of outstanding delivery and task orders. The Coast Guard, which wrested control of the $24 billion project away from its embattled LSI team last April, signed a new contract in June allowing Integrated Coast Guard Systems to continue working on the contract through January 2011, but legislative action could derail that deal.

"Frankly, no matter what happens with these LSI contracts or these reforms that are being proposed right now, those trends and reasons [agencies turned to LSIs in the first place] are going to continue," Gholz says. "There's always going to be an attraction to contracts like this."