Competiton by Design: Building Affordable Weapon Systems
for the 21st Century
Remarks by The Hon. Jacques S. Gansler, Under Secretary of Defense for Acquisition and Technology, Professional Services Council, Tyson's Corner, Virginia, June 1, 1998.
Thank you very much for inviting me here today to open the Professional Services Council seminar on public-private competition. As you may know, I have been involved in this issue for many years, both from the private sector perspective and, now, from the vantage point of Under Secretary of Defense for Acquisition and Technology. I have written extensively about public/private competition in my books and published articles and served as co-chairman of the 1996 Defense Science Board Summer Study on transforming the department's support structure. This study -- and a parallel study on outsourcing and privatization -- called for increased use of public/private competition to increase the efficiency of all non-inherently governmental functions within the Department. The benefits of an acquisition system which focuses on its core competencies and does only what it does best are clear and convincing. Improved performance, innovation, and increased cost savings are the result.
This transformation in the way the Department does business - the Revolution In Business Affairs - is a key element of the Defense Reform Initiative - and one of my top acquisition priorities as Under Secretary of Defense.
This morning, therefore, I would like to take a few minutes to discuss these acquisition priorities - including public/private competition -- as they fit into the overall context of current and future U.S. military strategy.
The Joint Chiefs of Staff made important recommendations for our future security in their seminal statement on projected global defense requirements, Joint Vision 2010. To combat the new threats our nation faces in the early 21st century, the JCS called for a "Revolution In Military Affairs" -- a fundamental strategic and tactical restructuring that, to be successful, will require a similar dramatic set of changes in the way we do business in the future.
The key acquisition priorities to support this Revolution In Military Affairs will be
to modernize our current weapons systems
to develop and deploy the major new systems and subsystems required for 21st century operations,
to support those systems efficiently and effectively; and
to do all three of these at a lower cost, within drastically reduced cycle times.
To defend our nation and to protect our allies, the U.S. military must have the weapon systems and equipment needed to conduct multiple, concurrent contingency operations worldwide. And it must be able to do so in any environment -- including one in which an adversary uses asymmetric means, such as nuclear, biological, or chemical weapons, information warfare, and large numbers of low-cost cruise and ballistic missiles. To counter these, we must provide our warfighters with the full protection of superior weapons and total information superiority in the battlespace.
To achieve total information superiority, we must incorporate advanced information systems into every weapon we acquire. This information superiority is critical to our survival in an unpredictable and increasingly dangerous world; a world where individual terrorists, transnational actors, and rogue nations can unleash firepower in many ways as terrifying as that of a major global power. These are not a few disorganized political zealots armed with pistols and hand grenades. Rather, they are well organized forces, armed with sophisticated, deadly weapons (often purchased on the world arms market) -- with access to advanced information and technology, the skills to utilize them, and few moral inhibitions about their use.
To counter this new enemy, we must not only fundamentally transform our acquisition process in terms of "how we buy", but also in terms of " what we buy". To meet the new threats, we must focus sufficient resources on R&D and procurement of the advanced weapons and, particularly, the systems of systems required to take advantage of the rapidly-evolving technology now becoming available. Specifically, in areas such as: integrated, secure, and "smart" command, control, communications, and intelligence infrastructures; smart or "brilliant" weapons; and credible deterrents against projected early 21st century threats -- biological, chemical, nuclear, and information warfare; and large numbers of low-cost cruise or ballistic missiles. It is especially important that these new systems be developed and deployed on a much faster cycle in order to make the best use of continuing advances in technology and to stay ahead of the technological applications utilized by our adversaries. Our Year 2000 acquisition commitment to the Vice President is to deliver new major defense systems to users in at least 25 percent less time. We expect to exceed that goal; and we must! (Information age technology cycles are 18 months, not the typical DoD cycles that can run 11-13 years, on average and stretch out even longer in many instances.)
Overall, we must pay for the required Revolution In Military Affairs by simultaneously engaging in a "Revolution in Business Affairs". To do so, as proposed in the Defense Reform Initiative announced by Secretary Cohen last November, we must take full advantage of the technologies and management lessons that have turned around American commerce and industry during the past decade.
This means designing and building affordable systems and, simultaneously, cutting support and infrastructure costs. While continuing to explore long-term qualitative leaps forward in military technology, we must also lead the way in low cost, advanced technology. Affordability is just as great a technical challenge as performance. Here we must take full advantage of the cost-sensitive, product and process technologies and the management lessons that have turned around American commerce and industry during the past decade. The big challenge is to develop an affordable system of systems that will be ready when initially required and evolve as the threat becomes more sophisticated and longer range. This requires urgent action. If we fail to invest now in these systems, they will not be around when we do need them five or ten years down the road.
To achieve the Revolution in Business Affairs, I have established five priorities:
We must implement aggressively and fully the acquisition reform initiatives of the past few years; and add to these where appropriate. This expanded definition of acquisition reform includes increased use of commercial practices and distribution systems to satisfy materiel support requirements; more competitive sourcing of current in-house work; and greatly expanded purchase of common-use, commercially available items. One of my goals as Under Secretary of Defense for Acquisition and Technology is to greatly expand and institutionalize the concept of "Total Cost of Ownership" - a seamless architecture which links concept, design, manufacture, testing and evaluation, maintenance, repair, and environmental impact - the entire life cycle of our acquisition process. We must also operate on much faster cycle times in order to make the best use of continuing advances in technology, as well as trim costs.
We must work to bring about far greater civilian/military industrial integration. We seek a greatly expanded partnership with a revived and prospering commercial industry - not a partnership in which we become simply the purchasers of commercial products and processes, but a dynamic and vigorous engagement that, through R&D, creates advanced products and systems with common technological bases and that, through use of flexible manufacturing, allows production of our low-volume defense-unique items on the same lines with high-volume commercial items.
The Department must shift the major share of its resources from infrastructure and support to modernization and combat. Currently, about 65 per cent of the DoD budget goes into the support and infrastructure area. Reducing our support costs will make more of our limited funds available for modernization and combat. Here also, we must learn to capture commercial technology (both product and process technologies) wherever applicable and apply them to defense-unique use. Increasingly, we must look to the private sector to competitively supply a wide range of goods and services, many of which they can deliver faster, better, and cheaper. As we look to the future, I see a Department of Defense, not exclusively restructured on the private sector model, but one that at least concentrates its mission much more on its core, inherently governmental, capabilities: warfighting, policy, management, and oversight. For all other activities, it will utilize competitive sourcing to achieve the best performance at the lowest cost - to get the best value for the government from both the public and private sectors.
We must totally reengineer our DoD logistics system. We are living today with a 1950s logistics model that is no longer affordable and that fails to provide acceptable performance. Advanced information systems and rapid transportation are keys to our success in this area. Two of our Year 2000 logistics support commitments to the Vice President are to achieve visibility of at least 90 percent of all DoD materiel assets and reduce order to receipt time by more than 50 percent. Such actions will have huge advantages in warfighting sustainment and, simultaneously, in support cost reductions.
Finally, we must focus on training and educating our acquisition workforce to meet the demands of this massive transformation effort. Unless we all know how best to do what we are doing; understand why we are doing it; and comprehend the benefits to be derived from doing it better and appreciate the urgency of the need, acquisition reform will not succeed. The key to our transformation is a well-educated, aggressive, and committed workforce.
Public/private competition, as you can see, is a top priority as we seek to transform the way the Department does business. We are the world's top buyer. And we must - in a world of level defense budgets and growing procurement needs -- achieve much better performance at greater savings. Competition drives innovation, savings, quality, and performance in the private sector. This is what has made the American economy the most powerful in the world. Competition must also work to achieve the same goals for the Department.
The 1996 Defense Science Board Task Force on Outsourcing and Privatization concluded that an aggressive DoD outsourcing initiative would achieve significant improvements in cost savings and performance. It concluded that successful U.S. companies increasingly turn to outsourcing to gain access to improved technology, better qualified personnel, and to free up the time and energies of management to focus on the companies' core competencies. The report concluded that the Department should contract out all support functions except those that are inherently governmental, involve warfighting, or for which no civilian competency exists.
As a result of these Defense Science Board studies and the Defense Reform Initiative recommendations, we have and will continue to evaluate our entire acquisition process to determine which functions are commercial in nature and can therefore be subject to public/private competition. Under OMB Circular A-76 authority, we will be undertaking studies to compete such functions as civilian pay, military retiree and annuitant pay, personnel services, disposal of surplus property, management of leased property, drug testing laboratories, various installation services, and much more.
Public/private competitions have already yielded significant savings. Through 1996, DoD competed functions involving some 90,000 Full Time Equivalents under the A-76 guidelines. These studies generated average savings of $1.5 billion per year and are expected to generate a total of $6 billion in savings by 2002, and $2.5 billion each year thereafter.
These competitions have resulted in about a 50/50 split on public/private winners; with a 20 percent average savings when the public sector won and close to 40 percent savings when the private sector won - with significant performance improvements in all cases, regardless of the winner - thus once more demonstrating that we can and do benefit significantly when we introduce competition into acquisition activities.
Recently, the A-76 competition process has been streamlined - primarily in the areas of cost comparison procedure, fixed overhead rate for in-house cost estimates, and work standardization changes to improve our ability to compare like units. Studies are initiated at the level of more than 30,000 FTEs each year and should continue at that level through the Year 2001.
In surveying some of the DoD components engaged in these studies, we found that one agency, the Defense Finance and Accounting System has already identified 288 Full Time Equivalents (out of a total of 1150) that can be privately competed. Competing these FTEs could save more than $18 million by FY 2000.
The Navy's communications site in Cutler, Maine, -- a relatively small facility -- has identified some 184 civilian and military positions qualifying for competition. These positions are in telecommunications, electrical plant and systems, administration and financial, and base supply.
Earlier this year, Deputy Secretary John Hamre issued a Defense Reform Initiative Directive to the Under Secretary for Personnel and Readiness and my office to develop uniform guidelines and criteria to identify DoD functions and positions that are inherently governmental in nature; commercial activities exempt from competition; and commercial activities that should be competed. The guidelines will be used to review all DoD positions and functions - in agencies and services - to determine how they fit the appropriate criteria we have established. We must complete this joint review by the end of November. A final report will be issued to Congress in February.
I am convinced that we will be increasing the level of public/private competitions as we become more disciplined in our analysis of those functions that we consider to be "core" governmental activities and compete all others. I realize that there are barriers to public/private competition: a deep mistrust of a competition in which one side both competes and decides who wins or loses; a sense that civil/military integration erodes our nation's tradition of a government that performs governmental functions and a private, commercial sector that supports the public sector; and the inherent weaknesses of our government cost-based accounting systems.
I share some of those concerns. I understand the lingering mistrust. But I also know that we must move toward greater competitive outsourcing to support our modernization efforts. We have no choice. The benefits are too obvious. And I do not see us retreating from that position.
I believe that a move to activities-based costing across both the public and private sector will help to smooth the way toward greater civil/military integration. Activities-based costing resolves one of the major arguments against public/private competition - that the government competitor can hide substantial indirect costs: costs that private competitors must reflect in their proposals. Activities-based costing insures greater visibility into both direct and indirect costs. As government moves toward activities-based costing, defense firms will follow. Widespread use of activities-based costing, throughout the public and private sector, will go far toward alleviating one of the major objections to public/private competition.
As we accelerate the Revolution in Business Affairs and the level of public/private competition, we will look to our commercial competitors - and partners - for support. In the end, we are both winners. We are competing for the same objectives - producing better performance at lower cost. Competition can help us to do that. The Department of Defense is committed to competition, as it is committed to concentrating on its core competencies. We look to you for guidance, for advice, for constructive criticism and, most of all, for innovation.
Thank you very much.