We cannot afford to fritter away precious time and treasure on unproductive process.  Moreover, the complexity and rigidity of the acquisition process, and the supplier infrastructure required to comply with it, is a tremendous barrier not just to entry for government acquisition, but tointerest in being a government supplier, and they are big factors decreasing the pool of potential innovators and competitors in the private sector willing and able to put up with it.

Intellectual Property Policy. 

Article 1 of the Constitution protects intellectual property not for the benefit of innovators, but to ensure that discovery and innovation and technological breakthrough thrive.  In his visit to Silicon Valley last year, Ashton Carter assured his audience that government and DoD are “strong proponents of protecting intellectual property rights” and that “IP is often the most important and valuable asset a company holds.”  However, DoD policy in practice is to require innovators to provide the “full spectrum” of intellectual property which it uses internally and for competitive purposes. The Air Force’s “Own the Technical Baseline” program is another example of DoD intention to obtain the entirety of IP from innovators.  Recent legislation goes even further by giving government rights to compel from innovators all data used or generated in the performance of a contract if government funds were used in any part of the design.  This right can be used to allow government access to design systems and models, historical data, and research as well.

One of the troubling aspects of DoD IP policy is the disconnect between what DoD innovation proponents say it is, and what DoD’s intellectual property policy actually is.  While Secretary Carter reassures Silicon Valley, senior acquisition staff believes that “industry uses IP as a weapon to gain competitive advantage”, crusades against what they see as “vendor lock”, and constructs policy that embodies these two unfriendly philosophies.  All of the private sector understands actual DoD policy on intellectual property, and this is perhaps the single greatest barrier to DoD access to and inspiration of immense technological achievement.  Clearly, current intellectual property policy is working against DoD innovation goals.

Acquisition of Commercial Items.

 A near universal recommendation of previous studies of defense acquisition is greater use of commercial products.  Development funded by the innovator, competition and greater volume all combine to make innovative products available to DoD in far greater variety and affordability than otherwise possible from the defense acquisition system.  Congress has been consistently supportive of acquisition of commercial items. DoD consistently less so.

In the 2013 National Defense Authorization Act (NDAA), Congress explicitly rejected[3] DoD legislative recommendations to narrow the definition of commercial items and services “of a type” that are “offered for sale”, and in 2016 required that commerciality determinations once made be valid for subsequent procurement.  However, the Director of Defense Pricing last year issued a memo dismissing the importance of the commerciality determination itself and instead stressed determination of price reasonableness regardless of commerciality and instructed contracting officers that “In certain instances, the only difference between ‘certified cost and pricing data’ and ‘other than certified cost and pricing data’ can be the fact that the data is certified.”  Then DoD issued a proposed rule on data required for commercial items which referred in several places to Federal Acquisition Register 15 requirements but finally withdrew the proposed rule after significant public pressure[4] and a letter signed by 55 Congressman. [5]

The Department of Defense has been updating its own Commercial Item Handbook, and the current version is a pretty good document.  It has some great advice too:

The more attractive the Government can make itself as a buyer, the more likely it is that world-class sellers will enter into contracts with the Government, that favorable terms and conditions will be negotiated, and that lower prices will be paid.

In other words, be a better buyer and a better customer.

Profit Policy.  

The defense industrial base earns margins averaging half that for all S&P 500 companies.[6]  Whether that is a good thing or not for taxpayers depends on whether DoD profit policy delivers what the taxpayer needs in acquisition and defense.  Does it attract competition and new innovators to do business with DoD?  Does it inspire private sector investment in solving DoD problems?  Does it sustain the industrial base, ready to provide DoD whatever capability it may ask of it?  And does it actually maximize affordability?  Our recognized innovation deficit, low rates of competition, and the shrinking industrial base suggest that it does not.

Acquisition policy must understand businesses will act as businesses.  As long as businesses have a choice on what markets to pursue and whose problems to solve, financial performance will play a dominant role in the decision.  Private investment and rock-star talent, like other resources, will flow to where it receives the best return.  Leading edge technology and the venture capitalists that fund it expect margins consistent with risk – significantly greater than DoD is typically prepared to offer.   It is the nature of markets.

DoD profit policy must evolve away from viewing profit as a needless expense to be minimized, but instead as a powerful tool for achieving acquisition goals.  For as long as defense margins lag commercial alternatives so completely, many innovators will be solving commercial problems, and DoD will be frustrated in achieving its goals for acquisition and defense.

Summary

The defense acquisition system has for decades struggled with reform and elusive goals.  It is a problem that cannot be solved by education or outreach or proximity to the private sector. The private sector knows what it means to work for the difficult and unfriendly defense acquisition system.

The 2016 NDAA (Section 808) directed the Secretary of Defense to establish an Advisory Panel on Streamlining and Codifying Acquisition Regulations.   Success of this panel will depend on many things including deep understanding of the connection between policy and choices policy drives in stakeholders, including the choice of current and potential suppliers to perhaps do something else. It is right that DoD seeks the technical advantage, capable equipment, and the cost-effective service wherever it can be found, but it should not be surprised to find that freed from an acquisition system that today requires a supercomputer to make sense of, that many of the best, most innovative companies and minds already work for it.

We cannot paper over all the risk.  It’s too expensive and it’s unfriendly to the partners we need. We must have a balanced approach to acquisition, and in the end, the best approach is what we already know.  Better Buying Power 2.0 told us “the first responsibility of the acquisition officer is to think”, and when we do, we discover that we know already that to achieve DoD acquisition goals, being a better buyer and being a better customer are one and the same thing.

End Notes

[1] John Hamre, An Honest Look at the “Military-Industrial” Complex, May 10, 2013.

[2] Harvey Sapolsky, Let’s Skip Acquisition Reform This Time, Defense News, February 8, 2009.

[3] Title VIII – Acquisition Policy, Acquisition Management and related Matters, Subtitle C,Committee Reports – 112th Congress (2011-2012) Senate Report 112-173 – National Defense Authorization Act for Fiscal Year 2013.

• “The Administration requested legislation that would amend the definition of commercial items in section 103 of title 41, United States Code, to exclude items that are merely `offered for sale’ or `of a type’ offered for sale in the commercial marketplace. The committee declines to make this change.  The Federal Acquisition Streamlining Act of 1994 (FASA) (Public Law 103-355) adopted a broad definition of commercial items to ensure that federal agencies would have ready access to products that are available in the commercial marketplace – including new products and modified products that are just becoming available.  Such access remains particularly critical in fast moving commercial markets, including the markets for information technology and other advance products.”

[4] DFARS Case 2013-D034, Evaluating Price Reasonableness for Commercial Items, Council of Defense and Space Industry Associations (CODSIA), September 3, 2015.

[5] Congress sent a letter with the signature of 55 legislatures asking DoD to withdraw the proposed rule.

[6] Many references document this fact but here are two recent authoritative sources.

• Aerospace & Defense – 2011 year in review and 2012 forecast, Pricewaterhouse Coopers, May 2012.
• The Aerospace and Defense Industry in the U.S. – A financial and economic impact study, Deloitte Development, March 7, 2012

This article originally appeared on the LexNext blog at the Lexington Institute

Image: U.S. Navy