Order Code IB96022
Issue Brief for Congress
Received through the CRS Web
Defense Acquisition Reform:
Status and Current Issues
Updated September 5, 2002
Valerie Bailey Grasso
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
DOD Acquisition Strategy for the New Era
Path to Reform
DOD Promotes Reform
Potential Impact of Reform Actions
The Competitive Sourcing of DOD Functions
Oversight of Reform Initiatives
Issues in the 105th Congress
Review of Congressionally Mandated Reports
Assessments and Recommendations of Defense Panels
Changes in Federal Acquisition Legislation
Issues in the 106th Congress
Issues in the 107th Congress
107th Congress: Key Public Law
106th Congress: Key Public Laws
FOR ADDITIONAL READING
CRS Reports

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Defense Acquisition Reform:
Status and Current Issues
SUMMARY
The end of the Cold War and its impact
sector operation. At issue is just how to
on defense spending has created a strong need
change DOD personnel management policies,
to reform Department of Defense’s (DOD)
and introduce DOD’s acquisition reform
acquisition system. With procurement spend-
initiatives to the private sector.
ing down, DOD expects to depend on savings
from acquisition reform to help finance future
Privatizing DOD’s functions through
force modernization. Policymakers believe
outsourcing: Although DOD had begun
that DOD should use more commercial prod-
outsourcing some functions, expanding its use
ucts because, in many instances, they cost less
has been a major goal. Success stories and
and their quality is comparable to products
studies estimated that outsourcing could
built according to DOD military specifica-
reduce costs and increase efficiency. Basic
tions. Many such reform proposals are based
questions include (1) how much can be saved
on recognition that DOD regulatory barriers
over the long-term and how will savings be
and a Cold War acquisition “culture” have
measured; (2) can DOD’s structure effectively
inhibited the introduction of commercial
manage the new outsourcing proposals; (3) do
products.
outsourcing proposals go beyond the “proper”
limits of DOD’s mission to protect U.S. na-
The need to encourage greater interaction
tional security; and (4) can outsourcing harm
between the defense and commercial indus-
DOD’s military readiness or war-fighting
tries is considered vital to keeping U.S. mili-
capability?
tary technology the best in the world — a
major objective of U.S. defense policy. Many
Oversight of reform initiatives: Congress
high-technology commercial products (e.g.,
will continue to exercise a strong oversight
electronics) are state-of-the-art and changing
role because of its longtime interest in
so fast that DOD’s military specifications, or
streamlining DOD’s acquisition processes. Its
“milspecs.” system cannot keep pace. Con-
attention will be directed at several
gress has passed several important reforms,
congressionally mandated DOD reports on
among them the Federal Acquisition Stream-
acquisition reform issued in 1996. Important
lining Act of 1994, Federal Acquisition Re-
topics will include how DOD is streamlining
form Act of 1996, Defense Reform Act of
and restructuring its acquisition processes,
1997, and the Federal Activities Inventory
practices and infrastructure; increasing
Reform Act of 1998. DOD has lowered or
efficiencies in acquiring defense maintenance
abolished regulatory barriers; experts agree,
and repair services; and outsourcing DOD
however, that more work is required to make
support functions that are considered
the system responsive to U.S. defense needs.
commercial in nature. Congress will rely on
the recommendations of several reports,
Restructuring DOD’s acquisition
including the Task Force on Defense Reform,
organization: Enacted reforms will mean
Defense Science Board Task Force on Pro-
greater freedom to innovate, make quicker
curement Reform, and the Section 912 (c)
decisions, and improve DOD program devel-
report on streamlining acquisition processes,
opment — running DOD more like a private
workforce and infrastructure.
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
H.R. 5010, the proposed FY2003 Defense appropriations bill, offers four provisions
that may affect DOD procurement and contracting rules. Section 8014 would prohibit the
contracting out of any DOD activity or function, unless a most efficient and cost-effective
analysis is performed and certified to House and Senate Appropriations committees. Section
8022 would prohibit the use of funds to perform any OMB Circular A-76 cost comparison
study if the study exceeds 24 months (for a single-function study) and 48 months (for a multi-
function study). Section 8025 contains language that would afford qualified nonprofit
agencies for the blind or severely handicapped the “maximum practicable opportunity” to
participate as DOD subcontractors and suppliers. Finally, Section 8090 would prohibit the
transfer of certain ammunition unless the ammunition is rendered incapable of reuse.
H.R. 4546, the proposed Defense authorization bill now in conference, provides waiver
authority for the use of contract firefighters or security guards at military installations or
facilities and management improvements in the DOD Purchase Card Program.
On May 1, 2002, the Commercial Activities Panel (P.L. 106-398) released its final
report on competition sourcing policy. The report has four recommendations: 1) adopt ten
sourcing principles as a benchmark against which to measure sourcing decisions; 2) abolish
OMB Circular A-76 and replace it with an “integrated competition process” that combines
elements of the Circular with the Federal Acquisition Regulations (FAR);1 3) implement
limited changes to the Circular that do not require legislation; and 4) develop federal
agencies into “high-performing organizations” (HPOs).
BACKGROUND AND ANALYSIS
Since the late 1980s, a number of important factors have converged to create a strong
need to reform DOD’s acquisition system, a system that has been periodically studied, and
altered, over the last 50 years. First, defense procurement spending has declined every year
since 1987. This decline has forced policymakers to examine how DOD buys military
equipment and look for ways to reduce costs in DOD’s acquisition system. Second, there
has been a realization that more commercial products should be used by DOD. These
products, in many cases, are now cheaper and of comparable quality to similar products
produced according to DOD’s military specifications (“milspecs”). Many high-technology
commercial products, particularly in the electronics industry, are state-of-the-art, and they
are changing so fast that DOD’s milspec system cannot keep pace with private sector
advancements. Third, it has become common knowledge that DOD’s regulatory barriers and
its acquisition culture have not only resulted in higher costs but also kept commercial
products from being used in the defense sector. As a result, policymakers are now seeking
to make DOD’s acquisition system more (1) cost effective; (2) interactive with commercial
industries; and (3) committed to procuring state-of-the-art technology for DOD weapon
systems on a timely basis.
1 Federal procurement policy is defined in the Federal Acquisition Regulation system, commonly
referred to as the FAR. DOD’s procurement rules are defined in the Defense FAR or DFAR.
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Policymakers have faced difficulty revamping a DOD acquisition system; however, the
budgetary need to do so has become more and more apparent. Former Secretary of Defense
Perry had stated that DOD was depending on substantial savings from acquisition reform to
finance a significant portion of future force modernization. In this regard, he had expressed
the importance of achieving greater integration of defense and commercial industries, as this
was the only way the United States can maintain its technological leadership — a major
element of U.S. defense policy.
Over the last 7 years, Congress has enacted a number of important reforms in the
acquisition process. DOD has taken steps of its own to reduce or eliminate regulatory
barriers, as well as to encourage use of commercial products in military systems. In the view
of many experts, however, a great deal more work will be needed in the future to achieve the
efficiency and responsiveness required of DOD’s acquisition process.
DOD Acquisition Strategy for the New Era
The end of the Cold War produced a significant decline in U.S. defense spending,
particularly in the acquisition of weapon systems. Procurement spending has declined 59%
in real terms from FY1987 to FY1997. The decline in DOD procurement spending during
the Bush Administration resulted in termination of some major weapon programs. It also
prompted development of a new acquisition policy, refined by the Clinton Administration,
that emphasized upgrading existing systems rather than initiating new ones. The new policy
also supported more spending for defense research and development (R&D) and less for
weapons production. The logic of the decision was that, although there would be a reduction
in the quantity of new weapons produced, the need to maintain technological superiority, (a
key combat multiplier), required increased efforts to develop new and innovative technology.
DOD also began altering the way it did business with the defense industry, looking for ways
to reduce costs. U.S. companies embarked on a variety of strategies to adjust to the new
spending environment and the inevitable consolidation of the defense industry.
Table 1 lists national defense budget outlays, FY1967-FY2007; the “CY$” in the first
column are current year dollars, and are based on the cost of goods and services in terms of
prices current at the time of purchase; constant dollars in the second column refer to the cost
of goods or services adjusted to eliminate the effect of inflation; in the third column, the
outlay deflators represent the inflation factor.
Another change in DOD procurement policy included increased interaction between the
defense industry and commercial, non-defense industries. Due to the plight of the defense
industry (increasingly affected by cutbacks), the 102nd Congress initiated a defense
economic adjustment program that included funding for commercializing military
technology. This program was designed to help U.S. defense companies diversify their
operations; firms were encouraged to produce so-called “dual-use” products that could also
be sold in the commercial sector. It also included incentives for DOD to form partnerships
with industry to develop cutting edge, dual-use technology that would be mutually beneficial.
In 1993, the Clinton Administration proposed additional initiatives; the 103rd Congress
supported and expanded them to help with the defense transition. These initiatives promoted
highly-skilled jobs in non-defense and dual-use technology areas, commercial-military
interaction, and conversion opportunities to invest in new civilian technology.
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Table 1. DOD Procurement, FY1967 - FY2007
Outlays
Fiscal
Outlays
Outlays, Deflators
(Constant FY2003
Year
(CY$ in Millions)
FY2003 Base
$ In Millions)
PROC.
RDT&E
PROC.
RDT&E
PROC.
RDT&E
FY 67
19,012
7,160
98,689
34,843
0.1926
0.2055
FY 68
23,283
7,747
114,795
36,417
0.2028
0.2127
FY 69
23,988
7,457
115,255
34,099
0.2081
0.2187
FY 70
21,584
7,166
99,642
31,270
0.2166
0.2292
FY 71
18,858
7,303
83,222
30,212
0.2266
0.2417
FY 72
17,131
7,881
72,168
31,150
0.2374
0.2530
FY 73
15,654
8,157
63,617
30,800
0.2461
0.2648
FY 74
15,241
8,582
58,119
30,433
0.2622
0.2820
FY 75
16,042
8,866
54,412
27,709
0.2948
0.3200
FY 76
15,964
8,923
50,490
25,902
0.3162
0.3445
FY 77
18,178
9,795
53,200
26,221
0.3417
0.3736
FY 78
19,976
10,508
54,418
26,176
0.3671
0.4014
FY 79
25,404
11,152
63,460
25,239
0.4003
0.4419
FY 80
29,021
13,127
65,073
26,798
0.4460
0.4898
FY 81
34,819
15,278
70,217
28,213
0.4959
0.5415
FY 82
42,993
17,729
76,968
30,485
0.5586
0.5816
FY 83
53,652
20,554
89,124
34,018
0.6020
0.6042
FY 84
61,879
23,117
96,724
36,751
0.6397
0.6290
FY 85
70,381
27,103
106,396
41,672
0.6615
0.6504
FY 86
76,517
32,283
112,521
48,336
0.6800
0.6679
FY 87
80,744
33,596
115,616
48,898
0.6984
0.6871
FY 88
77,166
34,792
107,274
48,942
0.7193
0.7109
FY 89
81,620
37,002
108,892
49,898
0.7496
0.7416
FY 90
80,972
37,458
103,774
48,566
0.7803
0.7713
FY 91
82,028
34,589
100,793
43,029
0.8138
0.8039
FY 92
74,881
34,632
89,330
41,821
0.8383
0.8281
FY 93
69,936
36,968
81,476
43,816
0.8584
0.8437
FY 94
61,758
34,786
70,538
40,367
0.8755
0.8617
FY 95
54,984
34,710
61,630
39,495
0.8922
0.8788
FY 96
48,912
36,561
53,749
40,734
0.9100
0.8976
FY 97
47,691
37,026
51,481
40,473
0.9264
0.9148
FY 98
48,214
37,423
51,683
40,489
0.9329
0.9243
FY 99
48,824
37,362
51,922
40,075
0.9403
0.9323
FY 00
51,697
37,609
54,218
39,656
0.9535
0.9484
FY 01
54,991
40,462
56,653
41,825
0.9707
0.9674
FY 02
58,903
44,912
59,669
45,536
0.9872
0.9863
FY 03
61,955
50,824
61,955
50,824
1.0000
1.0000
FY 04
67,090
54,414
65,969
53,445
1.0170
1.0181
FY 05
71,684
57,986
69,239
55,894
1.0353
1.0374
FY 06
76,378
58,970
72,398
55,729
1.0550
1.0582
FY 07
83,588
57,920
77,755
53,656
1.0750
1.0795
Source: Department of Defense, National Defense Budget Estimates for FY2003, March 2002.
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Path to Reform
As defense spending continued to decline and defense acquisition strategy evolved,
congressional policymakers directed DOD to undertake a comprehensive review and study
of its acquisition system, and present reform recommendations. Called the “Section 800”
report (after the pertinent section in the Defense Authorization Act of 1991, P.L. 101-510),
its purpose was not to replicate the work of previous studies, like the Packard Commission
Study (1986) and Defense Management Review (1989), but to take their findings and prepare
a workable set of recommended changes to acquisition laws. The study, once completed,
would serve as a major resource for the National Performance Review and the Clinton
Administration’s efforts to reinvent government, including the acquisition system.
The first package of congressional reforms, many of which were noncontroversial
recommendations of the “Section 800” report, was passed in the Federal Acquisition
Streamlining Act, or FASA, P.L. 103-355. The legislation revised more than 225 statutory
rules, encouraged federal agencies to buy commercial, off-the-shelf products, and simplified
government procedures for procuring those products. Key provisions included the following:
(1) raising from $25,000 to $100,000 the threshold for waiving many statutes governing
defense procurement; (2) streamlining the bid-protest process to prevent costly delays that
could result when contractors protest procurement contract awards; (3) raising to $500,000
the cap that would allow bidding defense contractors to bypass special accounting systems
requirements, and avoid providing lengthy cost and pricing data to the government; (4)
raising from $25,000 to $100,000 the value of contracts that could be reserved for small
business; and (5) creating unified federal procurement statutes for executive branch agencies.
This legislation promoted performance-based contracting in DOD, as well as the use
of acquisition reform “pilot” programs to test the effectiveness of some reform initiatives;
one such example is mission-oriented program management. Performance-based contracting
defines work to be performed in measurable, mission-related terms — in contrast to the
heretofore procedure of defining the work in broad, imprecise terms through a “statement of
work.” This approach was intended to reduce government costs and improve contractor
performance by encouraging more innovative and efficient approaches to government
contracts. Examples of such programs include joint direct-attack munitions (JDAM),
commercially-derived aircraft and engines, and a fire-support tactical trainer (see Oversight
of Reform Initiatives.)
A second package of reforms, called the Federal Acquisition Reform Act (FARA) of
1996, was passed as part of the FY1996 Defense Authorization Act. FARA made changes
in the acquisition process in the areas of competition, commercial items, certification
requirements and the Federal Acquisition Computer Network (FACNET). FASA II (called
FARA) was passed during the first session of the 104th Congress. It built upon the earlier
FASA legislation, and was included in the FY1996 DOD Authorization Act (P.L. 104-106).
The newest reform provisions sought to (1) simplify procedures to procure commercial
products and services, and at the same time preserve the concept of full and open
competition; (2) reduce barriers to acquiring commercial products by eliminating the
requirement for certified cost and pricing data for commercial products; and (3) streamline
the bid protest process by providing for all bid protests to be adjudicated by the General
Accounting Office (GAO). To reflect the projected efficiencies of acquisition reform and
the broader manpower reductions occurring at DOD, FASA directed DOD to reduce its
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acquisition workforce by 15,000 personnel during FY1996, and to report to Congress on how
to implement an overall 25% reduction during the next 5 years (from October 1, 1995). In
addition, the “procurement integrity” provision consolidates and clarifies the standards of
conduct for federal officials in the acquisition process, to ensure consistent treatment of such
personnel on a government-wide basis.
The FY1996 Defense Authorization Act changed federal procurement of information
technology through the establishment of the Information Technology Management Reform
Act of 1995 (ITMRA). First, it eliminated the central procurement authority of GSA,
making each federal agency responsible for its own information technology procurement and
investment. Second, it directed agencies to appoint a chief information officer whose
responsibilities would include ensuring that information technology expenditures conform
to budget and program management decisions. Third, it combined both protest processes for
information technology and federal procurement under GAO’s authority. (For a discussion
of current federal policies on information technology, see CRS Report 98-845, Federal
Government Information Technology Policy: Selected Issues, updated January 5, 1999.)
Revisions to Part 15 of the Federal Acquisition Regulations (FAR)2 went into effect on
September 30, 1997. Part 15 streamlines the source selection and negotiation requirements
to promote better communication between the government and potential contract bidders.
The new rules encourage early and open dialogue, narrow the range of competitive bidders
to those with a “reasonable chance” of winning the contract award, and promote “modular
contracting,” which allows large projects to be broken down into smaller, more manageable
parts, giving bidders a chance to focus on their particular expertise rather than take on the
entire project. The revised acquisition regulations was a factor in the Department of
Energy’s sale of Elks Hills Naval Petroleum Reserve for $3.65 billion, which represents the
largest divestiture of federal property.
DOD Promotes Reform
Former Secretary of Defense Perry and his deputies were active in introducing
acquisition reforms to foster greater efficiency, cost effectiveness, and military-civilian
industrial interaction. In 1994, DOD leadership began introducing and promoting a number
of new concepts, among them: 1) the single process initiative (SPI); 2) integrated product
teams (IPT) to develop and build weapons systems; and 3) “cost as an independent variable,”
a concept that would increase the priority of cost considerations in weapon system decisions.
Each of the military services had also introduced reforms to service-specific parts of DOD’s
acquisition system. DOD and the services are now in various stages of implementing these
concepts.
In June 1994, Secretary Perry introduced a major acquisition reform directive reversing
the traditional DOD preference for milspecs in favor of performance specifications and
commercial standards. The directive required preference changes in purchasing new systems
as well as modifications of existing systems. As a result, special waivers are now needed to
2 The Defense Federal Acquisition Regulation mirrors the Federal Acquisition Regulations, at
[http://www.arnet.gov/far/].
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use milspecs and will be granted in special cases only — a rule that used to apply to
performance specifications and commercial standards. The plan to implement this policy
directive was the SPI, which required U.S. companies to establish a common plant-wide
process and performance standard for new and existing defense contracts. It forced
contractors to consolidate, or eliminate, multiple processes, specifications, and standards for
a particular product whether it be for commercial or defense use within different services.
Over the next 12 to 18 months, DOD would modify all contracts at a given facility at the
same time, instead of on a contract-by-contract basis.
In another important policy decision, DOD decided in May 1995 that the IPT approach
would be used to develop and build weapon systems. The IPT concept, an increasingly
common practice in the commercial world, would link representatives of the weapon maker,
the military service purchaser, and the office of the defense secretary. Members of the team
stay in constant communication, addressing problems and negotiating changes to the
program’s development as they arise, rather than working at arm’s length through a formal
process (such as through the Defense Acquisition Board). The IPT concept was intended to
transform historically adversarial relationships, such as between headquarters staff
organizations and program office teams, into productive partnerships, and place renewed
emphasis on the importance of working as a cross functional team to maximize overall
performance. Success has been achieved by the IPT approach in a few new programs; one
example is the JDAM program (see next section). Encouraged by its results, DOD has begun
widening the IPT concept to many other programs, both new and existing; one such effort,
to review past performance in the source selection process, has resulted in policy and
procedural changes in federal acquisition policy (see “Issues in the 105th Congress).
In one of the latest, potentially far-reaching decisions, DOD has begun a policy of
increasing the importance of “cost” as a factor in deciding on the acceptable performance
level of a weapon system. It is likely to force decision-makers to consider trading away some
system performance to achieve greater cost savings. The policy, called CAIV, would attempt
to move away from a major tenet in the Cold War culture of trying to achieve the best level
of weapon performance at almost any cost. With the goal of lower costs and shorter
schedules, the policy would require DOD program managers to examine the weapon
system’s entire life-cycle — including research and development, production, operation and
support — and its cost patterns and objectives (see Figure 1).
The program manager would have to think about cost-related factors such as budgetary
resources, unit costs of comparable or fielded systems, mission effectiveness, technology
trends, innovative manufacturing techniques, and commercial business practices. DOD
intends to give its program managers and contractors more freedom to make the trade-offs
and meet cost targets; however, a significant challenge to implementing CAIV will be to
persuade DOD and industry managers to become more innovative, accepting larger risks to
achieve breakthroughs in cost and performance. The objective is to not penalize failures that
might occur, despite management’s best efforts (see the section on restructuring DOD’s
acquisition organization).
One of the most controversial of the acquisition reform initiatives is called “best value.”
Best Value is a process used in competitive contracting to select the most advantageous offer
by evaluating and comparing several factors, including 1) technical competence; 2) proven
past performance; 3) management capability; 4) life cycle costs, not just the initial price; and
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5) quality. The “best value” may not be the lowest bid offered; in fact, a Navy contract
award based on “best value” resulted in the awarding of a $1.5 billion dollar contract (to
build three LPD-17 amphibious assault ships) to a bidder that was $100 million more
expensive than the lowest bidder.
Source: Defense Systems Management College
Potential Impact of Reform Actions
Perhaps the most often-asked question about acquisition reform is how much DOD will
save from the ongoing initiatives. Although many are hopeful, history shows that many past
DOD efforts have resulted in only minimal savings. Past disappointments included the
projected, but unrealized, savings associated with the 1989 Defense Management Review.
A chief obstacle has been a residual inertia on the part of the U.S. government, particularly
in DOD — a clinging to the culture of the Cold War. Some experts argue, however, that this
time will be different because the defense procurement budget has declined so dramatically
(see Table 1, DOD Procurement), and there is little hope of the budget increasing enough in
the foreseeable future to finance projected U.S. needs for modernizing its force structure.
Former Secretary Perry had made it clear that DOD was depending on “substantial” savings
from acquisition reform, as well as from base closings and privatization of some of DOD’s
functions, to help finance “critical” defense modernization.
It is difficult, at this point, to predict what DOD will achieve in the way of savings from
its acquisition reform effort. More time is needed to complete implementation of the new
initiatives, and to establish a system that accurately measures the savings. Fairly reliable
estimates, however, exist for a few of the ongoing individual efforts. For example, the SPI
could result in significant cost reductions. In 1995, a study by Coopers & Lybrand found that
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1.7% of the cost of DOD acquisitions resulted from milspecs and standards, and that
government-imposed material management and accounting systems added another 0.6% to
costs. DOD estimates that about half of those costs, or $400 million, could be saved through
reform. Experts also believe that by applying the IPT approach to program development and
the CAIV concept to spending on weapons performance, potential costs savings could be in
the billions of dollars — a preliminary estimate at this point.
The most definitive estimate of cost savings, when SPI, IPT, CAIV, and other such
acquisition initiatives are applied to DOD programs, was offered by Secretary Perry. In
introducing DOD’s budget request for FY1997, he cited three DOD programs. The first of
these was the “Smart T” program — the Army’s tactical communication terminal for
MILSTAR. After reexamining the costs of certain levels of performance and streamlining
the specification and data requirements, the original programs’ cost estimates were reduced
from $800 million to $250 million, for a net saving of $550 million. The second estimate
of costs savings cited was for the Air Force and Navy JDAM program. The Air Force has
reported that using the IPT approach has shortened the JDAM acquisition cycle by 4 years,
eliminated numerous complexities, and significantly reduced the program’s original cost
projections.
Using the accelerated acquisition plan, as well as off-the-shelf components and other
commercial practices, the original cost estimate would drop from $42,000 per unit to
$14,000, a 67% savings estimated at $2.9 billion. The third estimate of costs savings cited
by Secretary Perry was for the C-17 program. After instituting the IPT approach, rethinking
some performance requirements using CAIV, reducing reporting requirements some 3 years
ago, and reaching an agreement to a multi- year procurement plan, DOD has estimated that
it will save $5.3 billion over the life of the program. Furthermore, the Air Force has
identified $13 billion in potential savings, or cost “avoidances,” for 24 programs that include
the C-17 and JDAM programs.
The Competitive Sourcing of DOD Functions
For a long time, DOD has sought to competitively source its functions through public-
private competitions through the OMB Circular A-76. U.S. policymakers will confront a
number of questions, the answers to which will help determine the success or failure of
outsourcing initiatives. First, does the initiative really reduce DOD costs over the long-term,
and how will DOD measure those savings? It is known that DOD has experienced problems
with its cost accounting and billing systems, important components in tracking cost savings.
Second, will DOD’s management structure be able to “manage” the initiative to make sure
its operation becomes more efficient? Experts point out that some private sector companies
have run into outsourcing problems because they failed to make necessary changes in their
management structure. Third, does the initiative fit into the current policy of encouraging
the closer integration of the U.S. defense and commercial industrial bases? Finally, does the
initiative go beyond the “proper” limits of privatization at DOD, whose first and foremost
mission is to protect U.S. national security, not to maximize savings? In other words, does
the initiative adversely impact DOD’s war-fighting capability?
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Oversight of Reform Initiatives
Congress has faced important oversight responsibilities because of changes taking place
in defense acquisition policy. The success or failure of these changes will be determined by
how quickly and effectively DOD acts to implement them. On March 15, 1996, DOD gave
final approval to a major revision of DOD Directive 5000.1 and DOD Regulation 5000.2-R,
both of which contained new policy changes and procedures based on FASA and FARA
legislation. The former 900-page set of regulations has been reduced to a 160- page volume
and is available via an on-line database. FASA has required the Comptroller General to
evaluate the effectiveness of implementing the final FASA regulations, and submit a report
to the Congress within eighteen months; FARA further broadened the scope.
The various congressionally mandated acquisition reform reports issued, and those to
be issued later, require attention and, perhaps, subsequent action. For example, and in
addition to the reports previously cited, the FY1996 DOD Authorization Act required another
report that would enable DOD to improve the performance of depot maintenance and repair
of U.S. weapon systems. On April 4, 1996, DOD issued its report, “Policy Regarding
Performance of Depot-Level Maintenance and Repair Workload.” It advocated reforming
the laws regulating how DOD allocates its maintenance workload between the public and
private sectors. It stated that such legal requirements prevented DOD from (1) taking full
advantage of lower cost opportunities through outsourcing to the private sector, and (2)
restructuring its public depots to provide the military only necessary “core” capabilities. The
report drew mixed congressional reactions, and the allocation of DOD’s maintenance
workload has become a subject of debate.
When the House passed the FY1997 DOD authorization bill (H.R. 3230), it voted to
maintain current DOD depot maintenance and repair policy (60% government, 40% private).
The Senate voted to increase the “private” share, from 40% to 50%. In the 1997 DOD
conference report, the House and Senate both receded; the conference report does not contain
any of these provisions. The conferees agreed not to take any action regarding these issues
that year; thus, the DOD depot maintenance and repair policy remained unchanged. The
FY1998 Defense Authorization (P.L. 105-85) establishes a new definition of what constitutes
“depot maintenance and repair;” it will require that DOD, in the course of conducting such
competitions, clearly satisfy a number of congressional requirements during the source
selection process, and requires that the Secretary of Defense provide an annual report to the
Congress, detailing the public/private percentages of depot maintenance and repair
workloads. This report would be reviewed by the Comptroller General to determine whether
DOD had complied with requirements of Section 2466 of the U.S. Code.
The Senate Armed Services Committee’s Subcommittee on Readiness recommended
a revision of the laws relating to the performance of DOD depot maintenance, including 1)
an increase in the private share to 50%; 2) adjusting the law so that work performed by
private companies at public depots will be counted as public sector depot maintenance, rather
than private sector depot maintenance; 3) requiring the efficient operations of the remaining
public Air Logistics Centers (ALC) prior to the implementation of any “privatization in
place” at former ALC locations; and 4) requiring DOD to preserve a core depot capability
that could maintain the types of weapons systems that have been identified as “mission
essential.” The effect of these provisions would have been to prohibit privatizing Air Force
maintenance work at McClellan ALC, Sacramento, California and Kelly ALC, San Antonio,
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Texas. By November 6, the House and Senate had both reached a compromise on the
FY1998 Defense Authorization Conference Report, adjusting the public/private depot
maintenance and repair workload from 60/40 to 50/50; however, a number of new provisions
were included, such as directing DOD to begin integrating public depot work. (See P.L. 106-
259, the FY2001 Defense Appropriations Bill.)
On March 2, 1999, in a hearing before the Subcommittee on Military Readiness, Deputy
Undersecretary of Defense (for Acquisition Reform) Stan Z. Soloway reported that DOD
acquisition reform initiatives had experienced measurable success within the Joint Air-to-
Surface Standoff Missile Program (JASSM), Joint Direct Attack Munition (JDAM) Program,
Fire Support Combined Arms Tactical Trainer (FSCATT) Program, Joint Primary Aircraft
Training System (JPATS), and the F-117 Tactical Air Program. Here are excerpts of his
March 2, 1999 testimony before the House Subcommittee on Military Readiness.
The Joint Air-to-Surface Standoff Missile, or JASSM, a next-generation air launched
cruise missile that will provide the Air Force and Navy a standoff capability greater than
currently exists, has made major gains from acquisition streamlining. Estimated program
costs have been reduced 44%. JASSM will also have a complete “bumper-to-bumper”
15-20 year warranty.
The Joint Direct Attack Munition, or JDAM, a strap-on guidance kit to enhance the
delivery accuracy of 1000 and 2000 pound bombs, employed acquisition reform to
achieve lower development and production costs, faster schedules, and lower unit costs.
The JDAM team reduced unit cost by approximately 60% below the estimated
requirement costs. Overall, cycle time for JDAM was reduced 35% with a 30% reduction
in program staffing. JDAM reduced projected O&M (Operation and Maintenance) Costs
by $49.4 million (86.8%) through the use of a 20-year warranty.
The Fire Support Combined Arms Tactical Trainer (FSCATT) program has achieved a
33% reduction in cycle time with a 13.5% reduction in estimated contract cost and 27%
reduction in program staffing.
Issues in the 105th Congress
Issues in the 105th Congress included 1) reviewing congressionally mandated reports,
the findings of which will aid Congress in identifying further cost cutting strategies for
reducing infrastructure costs savings in the Department of Defense; 2) integrating the
assessments and recommendations of various defense panels charged with assisting the
Secretary of Defense in changing the business culture within the Defense Department; and
3) assisting DOD in its implementation of acquisition workforce reductions as well as
refinements and other changes to federal acquisition regulations.
Review of Congressionally Mandated Reports
The continuing acquisition reform debate in the 105th Congress focused on a number
of congressionally mandated reports, the findings of past and current reports of the Defense
Science Board, and the changes that Secretary Cohen has announced as part of his Defense
Reform Initiatives. The first was a study of major defense acquisitions programs, called the
“Report of the Defense Science Board’s Task Force on Defense Acquisition Reform.”
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Phase II of the report was issued August, 1994; Phase III was published in August 1996.
Under the requirements of FASA, DOD was asked to reduce the average time that it took to
field “emerging technologies,” starting from the baseline of October 13, 1994. At that time,
it would take over 16 years to field the next generation’s weapon system; one of the study’s
objectives was to reduce this by upwards of 50%. In the Secretary of Defense’s Annual
Report for FY1996, the average time was reduced to about 9 ½ years.
The second study was chartered to develop recommendations for DOD on how to
effectively use outsourcing to create a funding mechanism for future force modernization
needs. The Task Force issued a lengthy final report, stating:
...The Task Force believes that all DOD support functions would be contracted out to
private vendors except those functions which are inherently governmental, are directly
involved in war fighting, or for which no adequate private sector capability exists or can
be expected to be established...
The third study was chartered to develop ways to improve the organization of
acquisition processes and personnel. The goal of the panel is to help DOD define a new
acquisition system that can reduce weapons procurement, both costs and cycle time.
Assessments and Recommendations of Defense Panels
In keeping with his desire to change the way that the Pentagon conducts business, often
characterized in the press as a “revolution in business affairs,” Secretary Cohen announced
a number of Pentagon management and organizational reforms. These reforms were
recommended by the Task Force on Defense Reform, a public/private partnership which
studied ways to improve business practices within DOD. The “Tail-to-Tooth” Commission
and the Task Force on Defense Reform operated in parallel, and a number of their
recommendations were used by the Secretary to develop his Defense Reform Initiatives.
They include 1) reducing the size of the Office of the Secretary of Defense, the Joint Staff
and defense agencies, from 141,000 to 111,000 staff members; 2) realigning functions within
the Department of Defense, consolidating and eliminating duplicate functions; 3) increasing
public-private competitions to outsource non-core maintenance and support work; and 4)
establishment of a senior-level Defense Management Council to monitor compliance. Cohen
has also proposed base realignment and closure (BRAC) rounds for the years 2001 and 2005
to further reduce defense infrastructure.
Changes in Federal Acquisition Legislation
Another significant policy change that evolved in the 105th Congress was the
interpretation of the use of past performance in the source selection process. Dr. Paul
Kaminski, Dr. Gansler’s predecessor, instituted the Past Performance Integrated Product
Team (IPT) to take a look at the evaluation of the use of past performance within the defense
contract industry. As a result of the IPT’s recommendations, Dr. Gansler issued a new set
of guidelines on past performance in the source selection process, to become effective on
February 1, 1998. These guidelines changed federal acquisition regulations and the Defense
Acquisition Regulation (DAR) Supplement; all defense agencies are required to adopt them.
The purpose of the new guidelines was to establish consistency and standardization in how
DOD contracting officials define and collect information about defense contractors. Among
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defense contractors, the lack of consistency in the use of past performance information had
been an ongoing source of criticism; the new policy will help defense contractors to
understand the kind of information that will be evaluated, rather than be evaluated on factors
known only to DOD. The new policy guidelines are to spell out a common management
policy among the services (previously Army, Navy, and the Air Force each had unique
approaches for collecting and evaluating contractor past performance information), and the
unified policy will make it easier to evaluate and compare contractor performance. Past
performance information (PPI) will be automated and, along with other efficiencies, will
make the information more accessible. The information will be made available to the general
public, at some future time. DOD has implemented a pilot study; a status report is expected.
Issues in the 106th Congress
The 106th Congress had an important oversight role in defense acquisition reform,
especially in monitoring DOD reports to Congress on many of its acquisition reform
initiatives (such as progress in reducing the size of the acquisition workforce) or in defining
governmental activities subject to managed competition and outsourcing alternatives.
OMB published the proposed rules to implement the Federal Activities Inventory
Reform (FAIR) Act of 1998 (P.L. 105-270) through the use of OMB Circular A-76. The
OMB Circular A-76 policy was first issued in 1966. The policy, supplemental handbook,
and accompanying policy memoranda were revised and re-issued on June 14, 1999.
Authority for the OMB Circular A-76 originated in the Budgeting and Accounting Act of
1921 (31 U.S.C. 1 et seq.) and the Office of Federal Procurement Policy Act Amendments
of 1979 (41 U.S.C. 401 et seq.) Legal or procedural challenges to the policy or procedures
were discussed in the Supplemental Handbook. Copies of updated versions can be found on
the Internet at [http://www.whitehouse.gov/OMB/circulars/index-procure.html].
FAIR outlined a way for federal agencies to decide who was best to perform work
activities — whether the work should be performed in-house or contracted out (called
outsourcing) to another public or private group. FAIR included a definition of what was
generally considered an inherently governmental function, although agencies can argue for
inclusions/exclusions to the lists. Lists may be challenged by interested parties, as defined
in the legislation. Activities or functions not inherently governmental in nature are
considered commercial and may be subject to a managed, competitive outsourcing process;
however, the legislation did not require agencies to contract out commercial activities.
The FAIR Act required federal executive agencies to submit annual inventory lists of
government activities “not inherently governmental” in nature; ultimately, the lists would be
made available to Congress and the general public. In accordance with the FAIR Act, DOD
released its final 2000 inventory of federal jobs that could be performed by private sector
companies. Reportedly, out of some 452,807 civilian jobs that could be performed in the
private sector, approximately 39% of those jobs are likely candidates for outsourcing.3
3 Saldarini, Katy. “Final Round Of Outsourcing Lists Released.” Government Executive. February
12, 2001.
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Issues in the 107th Congress
The 105th and 106th Congresses passed a number of defense reform provisions that
supported, if not encouraged, DOD’s outsourcing and privatization initiatives. In the 107th
Congress, Congress may seek the answers to three important questions: (1) do DOD
outsourcing and privatization initiatives save money, in the long term? (2) do DOD
outsourcing and privatization initiatives produce a smarter, more efficient and more
accountable government? (3) if not outsourcing and privatization, then what other alternative
strategies may produce similar, if not better, costs savings? The answers to each question
will be critical; DOD is faced with the prospect that 50% of its defense acquisition workforce
may be eligible to retire by 2005. As a result, Congress and DOD will need to work together
to reshape and redefine the size and scope of the future workforce.
The 107th Congress will examine the results of three studies and one report, mandated
by the FY2001 Defense Authorization Bill (P.L. 106-398), and one report mandated by the
FY2000 Defense Authorization Bill (P.L. 106-65), which may provide statistical and other
data to determine whether certain efficiencies in defense operations have been achieved.
First, the Comptroller General is mandated to conduct two studies: 1) the use of “contract
bundling” in military construction contracts (report was due February 1, 2001) and 2) the
policies and procedures governing the transfer of federal commercial activities from the
public sector to the private sector (report due May 1, 2002). Second, the Secretary of
Defense is directed to conduct a study on the impact of purchasing military parts,
components, and materials from foreign sources (report due October 30, 2001). Third,
Section 343 of P.L. 106-65 requires the Secretary of Defense to provide data on the (1)
number of contractors employed by DOD; (2) types of contractors; and (3) how (source of
appropriation) and where (DOD organizational element) contractors were funded (report due,
March 1, 2001). Fourth, DOD continues to reform various aspects of its management
practices and business operations to become more efficient and cost-effective in building and
maintaining the nation’s military force.
DOD is trying to reduce its infrastructure costs to achieve savings that could help
finance future weapons and military equipment modernization. The new Undersecretary of
Defense for Acquisition, Technology, and Logistics has announced DOD’s four priorities for
acquisition reform: 1) improving the credibility and effectiveness of the acquisition and
support process by reducing the acquisition cycle time and costs (the time and cost of
building new weapons systems) and including the real acquisition costs in the defense
budget; 2) improving the quality and morale of the acquisition workforce through the use of
special hiring authorities, granted by Congress, to recruit acquisition experts; 3) aligning
weapon systems and infrastructure with a new strategy currently under development by the
new Secretary of Defense; and 4) advocating for next-generation technologies that will
ensure military dominance.
Competitive sourcing studies between public and private sectors through the OMB
Circular A-76 and the requirements of a closely-related initiative, the FAIR Act {Public Law
(P.L.) 105-270}, are viewed as efforts to improve the efficiency of DOD business practices
while streamlining operational capabilities to produce budgetary savings. However, there
is conflicting evidence as to whether such competitions produce significant savings, in the
long term. The 107th Congress will likely face increased calls for continued debate and
proposals to study federal outsourcing efforts, as well as review legislation introduced during
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the 106th Congress that, if enacted, would ban future outsourcing initiatives unless savings
could be demonstrated. Another important development will be the recommendations of a
congressionally-mandated panel focused on federal competitive sourcing policy through
OMB Circular A-76. Section 832 of P.L. 106-398 mandates that GAO convene a panel to
study the policies and procedures governing the transfer of commercial federal activities
from government personnel to federal contractors. The Panel issued its report on April 30,
2002 (See Major New Developments section).
107th Congress: Key Public Law
P.L. 107-117. Authorizes appropriations for fiscal year 2002 for military activities of
the Department of Defense, for military constructions, and for defense activities of the
Department of Energy, to prescribe personnel strengths for the Armed Forces, and for other
purposes. Introduced in the Senate September 19, 2001. Passed Senate (text of S. 1438)
with Amendments (99-0), October 2. Received in the House, October 4; the House struck
all after the enacting clause and inserted in lieu thereof of the provisions of a similar
measure, H.R. 2586; bill passed without objection. Senate disagreed to House amendment,
agreed to conference, October 17. Conference report, H.Rept. 107-333, passed House (382-
40) December 13; passed Senate (96-2) December 13. Signed into law December 28, 2001.
106th Congress: Key Public Laws
P.L. 106-65 (S. 1059, H.R. 1401). Authorizes appropriations for FY2000 for military
activities of Department of Defense, for military construction, for defense activities of
Department of Energy, and for other purposes. Passed Senate, amended (92-3), May 27,
1999. Conference report passed House (375-45) September 15, 1999; passed Senate (93-5)
September 22, 1999. Signed into law October 5, 1999.
P.L. 106-79 (H.R. 2561, S. 1122). Makes appropriations for FY2000 for Department
of Defense and for other purposes. Passed House, amended (379-45), July 22, 1999. Passed
Senate by unanimous consent, amended, July 28, 1999. Conference report (H.Rept.106-371)
filed October 8, 1999. Conference report passed House (372-55) October 13, 1999; passed
Senate (87-11) October 14, 1999. Signed into law October 25, 1999.
P.L. 106-259 (S. 2593, H.R. 4576). Makes appropriations for FY2001 for the
Department of Defense and for other purposes. Prohibits 1) the conversion of DOD
functions from government to contractor performance, unless a “Most Efficient
Organization” analysis is completed and certified to House and Senate Defense
Appropriations Committees, and 2) the purchase of welded shipboard anchor and certain
mooring chain, unless both are manufactured in the United States from components that are
substantially manufactured in the United States. Authorizes public-private competitions for
depot maintenance and repair work, under certain conditions, and exempts such competitions
from the requirements of OMB Circular A-76. Reported to House (H.Rept. 106-644) May
25, 2000. Passed House (367-58) June 7, 2000. Senate took up H.R. 4576 and substituted
the text of S. 2593 as reported by the Senate Appropriations Committee, June 8, 2000.
Passed Senate, amended (95-3), June 13, 2000. Conference report (H.Rept. 106-754) filed
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July 17, 2000. Conference report passed House (367-58) July 19, 2000; passed Senate (91-9)
July 27, 2000. Signed into law August 8, 2000.
P.L. 106-398 (S. 2549, H.R. 4205). Authorizes appropriations for FY2001 for military
activities of the Department of Defense and for military construction, to prescribe military
personnel strengths for FY2001, and for other purposes. Reported to House (H.Rept.
106-616) May 12, 2000. Passed House (353-63) May 18, 2000. Senate took up H.R. 4205,
substituted the text of S. 2549, as amended, and passed H.R. 4205 (97-3) July 13, 2000.
Conference report (H.Rept. 106-945) passed House (382-31) October 11, 2000; passed
Senate (90-3) October 12, 2000. Signed into law October 30, 2000.
FOR ADDITIONAL READING
U.S. Department of Defense. Commission on Roles and Missions of the Armed Forces.
Directions for Defense. May 1995.
CRS Reports
CRS Report RL30776. The Berry Amendment: Requiring Defense Procurement to Come
from Domestic Sources, by Valerie Bailey Grasso.
CRS Report RS20943. Contracting Out: Governmentwide Legislation in the 107th
Congress, by L. Elaine Halchin.
CRS Report RL31236. Defense Outsourcing: The OMB Circular A-76 Policy, by Valerie
Bailey Grasso.
CRS Report RL30720. The U.S. Defense Industrial Base: Trends and Current Issues, by
Daniel Else.
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