How Can DoD Tap the Commercial Base?

nock that off!" admonished Defense Procurement Director Eleanor Spector, good-naturedly chiding her colleagues to stop asking for cost data from contractors when other information will do. Her words, delivered at a recent Defense acquisition conference in Norfolk, Va., speak volumes about the decade-long effort to revamp how the Defense Department does business.

A common contractor complaint has been that the government demands too much, forcing firms to jeopardize trade secrets or to develop onerous single-customer databases. As far back as the early 1970s, shipyard executives salivated at the prospect of a bounding commercial marketplace for their products. "Just watch how quickly we get out of the Defense business, with all its red tape" seemed to be their refrain. Of course, that market never materialized, so Defense continued to call the shots.

But what about information technology? The ubiquitous computer chip is at the heart of Defense's administrative, management, logistics and-by no means least-its weapons systems. Are chip makers, hardware designers, software developers and systems integrators waiting for their "commercial market" ship to come in? I don't think so.

The most contentious business issue for Defense today is figuring out how, as a minor-league player in terms of investment and needs, it can make the major leaguers pay attention.

"The top 80 or 85 companies in the IT industry are investing more in IT than the whole Department of Defense R&D budget," says Stanley Soloway, Defense's deputy undersecretary for acquisition reform. So, if the great majority of these companies are not interested in performing specialized R&D for the Defense Department, how does DoD access their innovations?

Is there a solution to this "civil-military integration" issue, that is, DoD's desire to take advantage of this broad commercial industrial base?

Defense seems to have a threefold strategy that addresses technology, rules and procedures, and people. Each element requires acculturation and entails risk.

Technology

Why not buy what's out there? From financial accounting systems to automated procurement systems, commercially available products may not always fit the bill. However, the odds of getting real integration if you are not buying what's out there are slim indeed. Getting something that's 80 percent off-the-shelf seems much more effective than making do with multiple patchworks of upgraded legacy systems, or, as some describe it, "paving over cow paths." Defense's Standard Procurement System, now deployed at more than a quarter of the 800 Defense contracting sites, is an example of trying a market solution. While it may not satisfy all major system procurement needs, it will go far to make the department's goal of a paperless procurement system much closer to reality.

Rules and Procedures

Spector's comments in Norfolk reflect the changed approach to rules and procedures. Contracting officers are urged to use market research, price history and parametric cost estimating rather than requiring contractors to certify to the accuracy of their cost data. Recent acquisition legislation has given weight to this new model.

Similarly, the administration has requested increases to the thresholds required for firms to be subjected to cost accounting standards (CAS), as well as more flexibility to waive standards when it is in the agency's best interest. These standards were established to ensure that firms with sizable cost-based contracts were following consistent and uniform procedures when accounting for their costs. Congress likely will agree this year to raising CAS coverage from $25 million to $50 million, significantly decreasing the number of company segments subject to unique accounting requirements.

Another innovation that requires legislative change is Defense's desire to expand its "other transactions" authority to cover not only prototyping, but also the production and procurement of weapon systems. The Defense Advanced Research Projects Agency was the first agency to get other transaction authority from Congress in the 1994 Defense Authorization Act. The law allowed DARPA to carry out prototype projects for weapons systems development without subjecting contractors to government-specific procurement statutes. That authority has since been given to other DoD agencies and extended through September 2001. From its inception through fiscal 1998, DoD awarded 111 "other transaction" contracts, at a cost of roughly $1.3 billion, with the contractors contributing roughly $250 million.

People

Soloway also cites the need to train, shape and manage the workforce as essential to achieving the results DoD seeks. In Spector's words, "You need smart buyers in these transactions because you need the business acumen to protect the government." It's the talent and skills of that professional acquisition workforce that DoD will need to point to when critics contend that every one of these efforts loosens controls and increases the department's risk.

Allan V. Burman, a former Office of Federal
Procurement Policy administrator, is president of
Jefferson Solutions in Washington.