Drained

ir Force project manager Terry Little is pioneering a host of new acquisition reforms in building the service's next-generation cruise missile, the Joint Air-to-Surface Standoff Missile, at Eglin Air Force Base, Fla. Those reforms, such as setting prices for missile parts based on the market prices for similar components and evaluating potential contractors based on their past performance, have cut the cost of the missile dramatically-from $700,000 to $400,000 per warhead.

Little, who was named the Air Force's top project manager in 1997, is hailed by many as one of the Defense Department's most innovative weapon system managers, and his record suggests he would be the perfect instructor for teaching future managers how to make today's acquisition reforms common practice.

The problem is that few Generation Xers are around to learn at Little's knee.

Over the past decade, hiring freezes, downsizing and outsourcing have all but eliminated young workers in the Defense Department's acquisition operations and are raising serious concerns about how those organizations will fill future management jobs. At Defense, the average age of acquisition workers is in the mid-40s, and more than half will be eligible for retirement between 2005 and 2007.

Little has not hired any new people in eight years, and not one of the civilian acquisition workers on his 70-person staff is under the age of 30. Most of Little's employees, who are mainly engineers, program analysts and contract specialists, are in their mid- to late 40s. They will be thinking about retiring, not about their next project, when the missile is fielded in 2003.

"The Defense Department is headed for a train wreck unless someone does something," Little says.

The train has been moving along that perilous track since 1989, when the Defense Department began slashing its acquisition workforce as part of its post-Cold War downsizing. Spurred on by lawmakers who warned that the military had become an "Army of buyers," Defense cut the civilian acquisition workforce by half from a peak of 310,000 workers in 1989 to about 150,000 today. By 2005, the workforce could be halved again with the expected wave of retirements.

"Unless immediately addressed, this situation will leave many organizations without the talent, leadership and diversity needed to succeed in the 21st century," said a recent Defense report, "Shaping the Civilian Acquisition Workforce of the Future."

The October report, prepared by a Pentagon task force for Jacques Gansler, the Clinton administration's undersecretary of Defense for acquisition and technology, and Bernard Rostker, Clinton's undersecretary of Defense for personnel and readiness, sounded a clarion call for action on the pending workforce crisis.

Gansler and Rostker heeded the advice. Defense officials ordered all the services to come up with plans for addressing the looming shortage by next summer. And in a reversal of past policy, the Pentagon has slowed acquisition workforce cuts. In fact, for the first time in years, Defense officials are telling managers to plan on hiring new acquisition workers. "The Department of Defense is facing a crisis that can dramatically affect our nation's ability to provide warfighters with modern weapon systems needed to defend our national interests. After 11 consecutive years of downsizing, we face serious imbalances in the skills and experience of our highly talented and specialized civilian workforce," Gansler and Rostker said in an Oct. 11 letter sent with the report to all service chiefs and secretaries, urging them to make civilian workforce planning a top priority. The Bush presidential transition team also was briefed on the report.

Stan Soloway, Clinton's deputy undersecretary of Defense for acquisition reform, concedes that Defense, like other federal agencies, was late in recognizing the need for human capital planning. But, he says, the "dramatic slowing" of downsizing and calls for strategic human capital plans show Defense is placing a high priority on the issue. "What we have done is recognized it and jumped out very aggressively to address the human capital issue," says Soloway.

The acquisition workforce includes any Defense workers who have acquisition and procurement responsibilities-from purchasers to physicists. The obvious members are buyers, contract writers and weapon system program managers, but the category also includes engineers and scientists who oversee research and development support contracts and lawyers who review contracts. Conversely, not all those at an acquisition organization are counted among that workforce. For example, a security guard or comptroller in an acquisition organization, neither of whom have procurement responsibility, would be excluded from the count.

Keith Charles, Defense's director of civilian acquisition and technology workforce management, oversaw the task force report and minces few words in saying Defense put little thought into making cuts over the past decade. "The Pentagon was not strategic in downsizing its civilian workforce. The downsizing of the uniformed force was planned to the umpteenth degree, but with civilians we did not pay any attention. We just cut," says Charles.

Robert Lieberman, Defense's assistant inspector general for auditing, has studied the impact of workforce reductions on acquisition reform and says Congress and the Clinton administration's reinventing government effort also share some of the blame for haphazardly handing out pink slips. "The theme throughout the whole decade was downsizing for the sake of downsizing," he says.

The Pentagon is not alone in facing a human capital crisis. Comptroller General David Walker, who heads the General Accounting Office, has repeatedly warned all federal agencies that they will face worker shortages and skills imbalances in the next decade if they do not begin planning today for retirements of the baby boom generation. GAO recently named human capital planning as a major management challenge confronting agencies.

Congress also has taken notice of the potential worker shortage. "More than half the federal workforce-900,000 employees-will be eligible to [retire] in the next four years," said Sen. George Voinovich, R-Ohio, in a Dec. 4 news conference announcing the release of the "Report to the President: The Crisis in Human Capital," prepared by the Senate Governmental Affairs Subcommittee on Government Management, Restructuring and the District of Columbia.

The congressional study called for hiring top managers and key information technology staff "on the spot," giving agencies greater authority over their training budgets, and expanding the use of experimental pay programs. Many worker and skill shortages result from government's inability to compete with the private sector on salaries and incentives, the study found. "There's little doubt that the federal government is in dire need of a unified strategy to rebuild the civil service to confront the challenges it faces in demographics and performance," said Voinovich.

The Defense Department might be the place to look for that strategy. Defense expects other agencies will follow its lead in plugging the workforce drain. The Pentagon report said Defense accounts for the largest part of the government's civilian workforce (about 40 percent) and noted that both federal agencies and private companies will closely watch how the department shapes its 21st century staff.

Hindering Reform

Few people would defend the wholesale cuts in the acquisition workforce of the past decade. Indeed, questions are being raised about whether those reductions have led to a "wrong-sizing" of the acquisition workforce and hurt Defense's effort to adopt commercial business practices. The Defense Department's acting inspector general, Donald Mancusco, has been the most vocal critic of the workforce cuts. In a March 2000 report and in testimony last spring before the House Government Reform and Senate Armed Services committees, Mancusco suggested that cuts have hindered reform.

In the report and congressional testimony, Mancusco said that while Defense has cut its acquisition workforce nearly in half, the department has not made similar reductions in the number of contracting actions acquisition workers must handle. From fiscal 1990 through fiscal 1999, the value of all Defense procurement actions fell only 3 percent (from $144 billion to $137 billion annually), but the number of transactions rose by 12 percent (from 13.2 million to 14.8 million). The increase was even greater for transactions exceeding $100,000.

"If the workload had been reduced proportionally, eliminating half of the acquisition positions could be regarded as positive achievement. Unfortunately, this has not been the case," said Mancusco in April testimony before the Senate Armed Services Readiness and Management Support Subcommittee. A March inspector general's report found that the "growing imbalance between resources and workload" in 14 of 21 acquisition organizations reviewed by auditors caused problems including:

• Skills imbalances.
• Insufficient staff to effectively manage requirements.
• Increased program costs because outside contractors were hired to replace in-house technical personnel whose jobs were eliminated.
• Difficulty retaining personnel.
• Reduced scrutiny and timeliness in reviewing acquisition actions.
• Increased backlogs in closing out contracts.
• Inability to develop cost-savings initiatives.

"The root cause of a lot of the sloppiness in managing and writing contracts is clearly related to understaffing and overworked and undertrained people. There are just too many people responsible for seeing too many things at the same time," says Lieberman. He stresses that the IG's office is not arguing against downsizing, but believes 50 percent is "too much."

According to the inspector general's report, such reforms as the increased use of government purchase cards, streamlining regulations for the most expensive purchases and reengineering buying practices have improved Defense contracting and might be even more helpful in the future. However, the report added, "concern is warranted because staffing reductions have clearly outpaced productivity increases and the acquisition workforce's capacity to handle its still-formidable workload."

Soloway disagrees, saying acquisition reforms have given Defense the improved processes and practices needed to perform during the downsizing. Without reforms, he says, the downsizing would have "strangled" the Defense Department.

Charles says that cuts were needed in some areas, but that in others they might have gone too far. Most agree, he says, that the elimination of 3,000 purchasing agent jobs for small items was necessary with the advent of purchase cards. However, Charles says, too many quality control engineers have been lost, and that has led to the fielding of less reliable weapons.

Little says staff reductions can serve as a "necessary forcing function for acquisition reform." He says large personnel cuts have forced Defense to write more innovative, performance-based contracts that reward industry for finding ways to cut costs and develop better products and services. In the past, he says, overstaffed contract offices would have written "how-to contracts" that would have permitted little innovation or adoption of commercial business practices.

Still, Little says, reforms might have come more quickly if Defense had hired and retained younger workers. "Acquisition reform would be much easier with a younger workforce because young people are more willing to take risks and depart from the norm. It is rejuvenating to have young folks who aren't jaded," Little says.

A 'Silver Lining'

Deidre Lee, Defense's director of procurement, says bickering over cuts does not serve the department well. "There's a silver lining here," Lee says. "I see this as an opportunity [to reshape our workforce]. We need to step up and manage it."

Defense managers, workforce experts and congressional staff members agree that the retirement crunch gives Defense a unique chance to build an acquisition workforce with a new set of business skills. "We are worried because this a tough challenge, but it also comes with a huge opportunity," says Charles.

Today, Defense might not have the right mix or number of acquisition workers, but it does have a strong sense of the type of acquisition employee it wants. All acquisition workers are being asked to move beyond narrow, technical jobs and instead perform their duties with an eye toward accomplishing their organization's overall mission.

Lee says contracting officers should no longer simply write contracts. They must manage business relationships with manufacturers or suppliers to foster innovation, better prices and performance-oriented deals, she says. "In the past, we were more stovepiped. Somebody gave us the requirements, and we would write the contract. Now, we want to focus on not only what we are doing, but why," Lee says.

Even technical personnel, such as engineers who design weapon systems, are being asked to move beyond their traditional duties. Charles says engineers must spend time in program office budget shops so they learn to consider cost when designing weapon systems. "Workers need to be multifunctional, not unifunctional," he says.

Finding Workers

Defense's challenge is finding and training the next generation of workers to fulfill those duties. The services' strategic human capital plans due next summer are a first step; the next one will be developing specific programs to attract and retain those workers.

"Managing and reshaping the civilian workforce to meet future needs will require leadership commitment, a significant investment of resources in compensation and development programs, new authorities and, most important, a change in the traditional way that DoD manages its people," the Defense task force report said. "To make this transition successful, DoD must employ innovative approaches to recruiting, developing and retaining its future workforce."

The report listed 31 initiatives that Defense should pursue, including:

• 
  
• Reengineering and automating the hiring process.
• Providing more competitive pay and increasing bonus ceilings.
• Reorganizing career fields to develop multifunctional workers.
• Increasing leadership opportunities for Defense civilians.
• Developing recruiting programs for civilian acquisition workers.
• Establishing an exchange program with industry.
• Providing more timely training programs.
• Considering changes to the federal retirement program. Some of the changes to pay and retirement programs would require congressional approval.
  

Charles says civilian workers must also be given higher positions in acquisition organizations. In most organizations, he says, military personnel have traditionally held the top jobs and been trained for those positions. As a result, talented mid-level civilian managers often leave government to advance to the peak of their profession. "The only way we get civilian leadership today is by happenstance," Charles says. Training must be expanded beyond the 80 hours now required for all civilian acquisition personnel, he adds.

Testing Reforms

Already, more than 5,000 workers in 53 acquisition organizations are testing pay and other personnel reforms as part of Defense's civilian acquisition workforce personnel demonstration project. The program replaces 11 narrow acquisition career fields with three broad career paths and places workers into four broad pay categories rather than the traditional General Schedule pay and classification system.

Anthony Echols, program manager for the workforce demonstration, says broad career paths make it easier for managers to promote employees and provide them with a wider range of job experiences. Under traditional personnel rules, it takes months to promote an employee to another grade in the General Schedule because of paperwork and job-posting requirements. By broadening career fields, managers can promote and move workers to other jobs in their fields-which is often the equivalent of moving up a grade in the General Schedule-without extensive personnel actions.

Perhaps the demonstration's most innovative reforms involve pay. All employees are evaluated on their contribution to the organization. Their salary either increases, stays the same or even decreases based on their annual performance. The system allows managers to reward top employees and give all workers an incentive to do the best possible job. "Under [traditional personnel rules] you showed up and you got paid. Under the demonstration you not only have to show up but you have to perform if you want to get paid," says Echols. The program can be expanded to up to 95,000 workers, but that will require approval from federal employee labor unions and the Office of Personnel Management, he says. "We are looking to make a significant change in the culture of the acquisition workforce," Echols adds.

Change is certain to be the hallmark of the future Defense acquisition workforce. The challenge for Defense is managing that change. The largest federal agency has a unique opportunity to reshape its workforce with a new generation of workers, but if it doesn't act quickly, a crisis will emerge as Defense finds it does not have a future workforce.