Order Code RS22631
March 26, 2007
Defense Acquisition: Use of Lead System
Integrators (LSIs) — Background, Oversight
Issues, and Options for Congress
Valerie Bailey Grasso
Analyst in National Defense
Foreign Affairs, Defense, and Trade Division
Summary
Some in Congress have expressed concern about the government’s use of private-
sector lead system integrators (LSIs) for executing large, complex defense-related
acquisition programs. LSIs are large, prime contractors hired to manage such programs.
Two LSI-managed programs — the U.S. Army’s Future Combat System (FCS) and the
U.S. Coast Guard’s Deepwater program — have been strongly criticized by some
observers because of cost and schedule overruns, and the potential for possible conflicts
of interest. Supporters of the LSI concept argue that it is needed to execute certain large,
complex acquisition efforts, and can promote better technical oversight and innovation.
They assert that the use of LSIs result in an overall benefit for the government.
Congress has several potential options regarding how and when LSIs might be used in
the future. Section 115 of P.L. 109-364 requires the Comptroller General to report to
Congress on the FCS lead system integrator. The 110th Congress has also introduced
legislation (S. 680) to require the federal government to study the use of LSIs, and
legislation which would prohibit the use of LSIs for remaining contracts under the
Deepwater Program (S. 889). This report will be updated as events warrant.
Background
LSI Concept. A lead systems integrator is a contractor, or team of contractors,
hired by the federal government to execute a large, complex, defense-related acquisition
program, particularly a so-called system-of-systems (SOS) acquisition program.1 LSIs
1 An SOS program is aimed at acquiring a collection of various platforms (i.e., ground vehicles,
aircraft, and ships) that are to be linked together by computer networking technology so as to
create a larger, integrated overall system. For more on SOS acquisition programs, see Lane,
Joann and Boehm, Barry, System-of-System Cost Estimation: Analysis of Lead System Integrator
Engineering Activities, Inter-Symposium 2006, the International Institute for Advanced Studies
in Systems Research and Cybernetics, at [http://sunset.usc.edu/publications/TECHRPTS/
(continued...)

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can have broad responsibility for executing their programs, and may perform some or all
of the following functions: requirements generation; technology development; source
selection; construction or modification work; procurement of systems or components
from, and management of, supplier firms; testing; validation; and administration.2
Section 805 of the FY2006 National Defense Authorization Act3 defines two types
of LSIs: (1) prime contractors who develop major systems,4 that are expected at the time
of the contract award to perform a substantial portion of the work on the system and major
subsystems; and (2) contractors who perform acquisition functions that are closely
associated with “inherently governmental” functions in the development of a major
system. LSIs, regardless of type, are subject to the same rules as other federal
contractors.5
Examples Of LSIs. Examples of programs being executed with LSIs include the
Army’s Future Combat System (FCS) and the Coast Guard’s Deepwater acquisition
program, both of which are multibillion-dollar SOS acquisition programs.6 The LSI for
the FCS program is a partnership between Boeing and Science Applications International
Corporation (SAIC); the LSI for the Deepwater program is Integrated Coast Guard
Systems (ICGS), a joint venture between Northrop Grumman and Lockheed Martin. Both
of these programs have experienced problems, among them costs and schedule overruns,
and have been the subject of multiple congressional oversight hearings.
1 (...continued)
2006/2006_main.html].
2 Generating program requirements is an important process in defining the mission, scope, and
direction of a major defense acquisition program. Decisions made here can help mitigate the
government’s potential risk. Source selection means the solicitation, evaluation, and hiring of
subcontractors to work under the supervision of the LSI. LSIs manage the procurement of all
systems and components, including the construction and modification of such systems. LSIs
manage the testing of systems, validate that systems are appropriate and interoperable, and
administer all aspects of this process. LSIs perform functions that are usually performed by the
contracting officer, and other officials on the government’s acquisition team.
3 H.R. 1815/P.L. 109-163.
4 Major systems are defined in the Act as systems for which the total expenditures for research,
development, test and evaluation (RDT&E) are estimated to be more than $155 million, or for
which the total amount projected for procurement is estimated to be more than $710 million.
5 Section 805 required DOD to submit a report to Congress on the use of LSIs for the acquisition
of major systems. As a result, DOD conducted a survey to determine how many contractors met
the two definitions in Section 805. Of 60 contracts reviewed, DOD determined that 39 fell within
the scope of some, but not all, of the requirements of the first definition, and that 21 contractors
met the requirements of the second definition. (Report to Congress, Required by Section 805 of
the National Defense Authorization Act for FY2006, Use of Lead System Integrators in the
Acquisition of Major Systems. Office of the Under Secretary of Defense for Acquisition,
Technology & Logistics, September 2006, 5 p.)
6 For more on the FCS program, see CRS Report RL32888, The Army’s Future Combat System
(FCS): Background and Issues for Congress, by Andrew Feickert. For more on the Deepwater
program, see CRS Report RL33753, Coast Guard Deepwater Program: Background, Oversight
Issues, and Options for Congress, by Ronald O’Rourke.

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Other examples of LSI-managed programs include the National Missile Defense
Program (the LSI is Boeing), and the Air Force’s Transformational Communication
System ( the LSI is Booz-Allen-Hamilton).
Rationale For Using LSIs. In recent years, federal agencies like the Department
of Defense (DOD) have turned to the LSI concept, in large part, because they have
determined that they lack the in-house, technical, and project-management expertise
needed to execute large, complex acquisition programs. It is not altogether clear what the
reasons are for this insufficient expertise determination. Some possible reasons for the
lack of in-house expertise may include the downsizing of the DOD acquisition workforce,
and the increase in the scope of DOD procurement activity. DOD states that its
acquisition workforce was reduced by more than 50 percent between 1994 and 2005.7
The lack of sufficient in-house expertise could also result from the growing complexity
of the systems being acquired.
Supporters of LSIs argue that LSI arrangements can promote better technical
innovation and, consequently, overall system optimization. This is largely because
private-sector firms often have better knowledge and expertise, compared to federal
government agencies, of rapidly developing commercial technologies that can be used to
achieve the government’s program mission and objectives.

Potential Oversight Issues for Congress
Problems with the FCS and Deepwater programs have raised concerns regarding the
use of private-sector LSIs for executing large, complex defense acquisition programs.
Given the size, scope, and costs associated with the FCS program, Congress mandated
that DOD hold an FCS milestone review, following the preliminary design review
(scheduled for 2009). Since the inception of the FCS program, the Government
Accountability Office (GAO) has performed audits of the program’s cost, schedule, and
performance. One of GAO’s concerns is that under the current FCS program schedule,
the actual performance of the completely integrated FCS will be demonstrated very late
in the program, and could result in a significant cost increase to the government. Section
115 of P.L. 109-364 requires the Comptroller General to report to Congress on GAO’s
assessment of a myriad of factors associated with the FCS program, including the Boeing-
SAIC LSI arrangement.8
Recent congressional hearings on the Deepwater program have raised a number of
oversight issues. The DOD Inspector General (IG) reported on the increased Deepwater
7 Defense Acquisition Organizations: Status of Workforce Reductions. Report to the Chairman,
Committee on National Security, House of Representatives. General Accounting Office,
GAO/NSIAD-98-161, June 1998. 20 pages. For another source of data on the federal acquisition
workforce, see “Report on the Federal Acquisition Workforce, FY2003-2004,” Federal
Acquisition Institute Report, Executive Summary, p. vii.
8 For further discussion on the FCS program, refer to the following: Key decisions to be made
on the Future Combat System. Statement of Paul L. Francis, Director, Acquisition and Sourcing
Management. GAO-07-376, Mar. 15, 2007, 29 p; Government Accountability Office, Future
Combat Systems Challenges and Prospects for Success, Government Accountability Office,
GAO-05-442T, Mar. 16, 2005, p. 2.

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costs due to design deficiencies and mismanagement, and raised questions about a lack
of accountability and responsibility on the part of the LSI and Coast Guard management.
Another assessment, from the Defense Acquisition University, questioned the overall
Deepwater LSI approach, and recommended fundamental changes to the program,
including a revised acquisition strategy that “does not rely on a single industry entity or
contract to produce or support all or the majority of U.S. Coast Guard capabilities.”9
Transparency. Some observers have expressed concern that LSI arrangements can
result in the government having insufficient visibility into many program aspects, such
as program costs, optimization studies conducted by LSIs for determining the mix of
systems to be acquired, LSI source-selection procedures, and overall system performance.
In an LSI arrangement, the federal government has a contractual relationship with the LSI
prime contractor, not with any subcontractors that report to the prime contractor. A lack
of transparency in these areas can make it more difficult for the federal agency or
Congress to adequately manage and conduct effective oversight of an acquisition
program. Also, this lack of transparency could potentially increase the risk of cost
overruns, schedule slippage, poor product quality, and inadequate system performance.
Given the three-year rotation cycle of most senior military officers, combined with
DOD’s decreased amount of in-house technical expertise, observers are concerned that
the government’s ability to make independent assessments of programs being executed
by LSIs has been reduced. Any difficulty in independently assessing an LSI’s
performance in executing a program could also complicate the government’s ability to use
a contractor’s past performance record in weighing a future bid from a firm that acted as
an LSI.
Potential Conflicts Of Interest. Some observers have expressed concern that
LSI arrangements can create conflicts of interest for an LSI in areas such as determining
a system’s requirements and soliciting, evaluating, and hiring contractors. They are
concerned that an LSI might tailor system requirements to fit the LSI’s own products, or
that in selecting a source for a system or component, the LSI might favor one of its own
subsidiaries (or a favored supplier firm) over other potential suppliers. Favoring some
contractors over others could increase the government’s costs or reduce technical
innovation, particularly if a more innovative solution offered by another firm would
compete with a core business line of the LSI.
Self-certification. Some observers have expressed concern that LSI arrangements
can result in LSIs certifying that their own work has met contractual requirements for the
program. Such self-certification, these observers argue, can equate to no real certification.
The self-certification issue has been raised in particular in connection with the Deepwater
program. In a recent hearing, Philip Teel, President of Northrup Grumman Ship Systems,
has denied that self-certification took place, except in some foreign contracts. 10
9 Senate Committee Hearing of the Ocean, Atmospheres, and Fisheries of the Coast Guard’s
Subcommittee on Commerce, Science, and Transportation Committee, Feb. 14, 2007.
10 Walsh, Bill. “Coast Guard report angers panel; Commandant is scolded for lack of oversight
of work on new flagship.” Houston Chronicle, Jan. 31, 2007, p. A6. Walsh, Bill. “House
members react angrily to patrol boat problems.” Newhouse News Service, Jan. 30, 2007.

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Re-competing LSI Role. Acquisition programs being executed with LSIs can
span over many years. Although the role of the LSI in such a program can be re-competed
every few years, some observers are concerned that, in practice, it would be very difficult
for an outside firm to successfully challenge an incumbent LSI that has managed a
program for several years. The incumbent’s greater knowledge of the program, and the
potential disruptions to the program that might be caused by switching to a new LSI,
would likely pose a barrier to another contractor’s ability to take over the program. This
could make it difficult for the government to terminate a program. As a result, these
observers argue, the government may have little real ability or leverage to use periodic re-
competition to improve the performance of the LSI in a long-term acquisition program.
Competition For Subsequent Programs. A related concern focuses on the
potential for competing successor programs. Observers are concerned that if an LSI-
managed SOS program is central to the future capabilities of the military service in
question (as is the case for the FCS and Deepwater programs), the LSI might design the
SOS architecture so as to create a built-in advantage for products made by the LSI. This
decision could impact follow-on competitions the military service might later conduct for
other acquisition programs.
Potential Options for Congress
Potential options, in addition to maintenance of the status quo, regarding how and
when LSIs might be used in acquisition programs are listed below. Some of these options
could be combined.
! reduce the possible need for LSIs by pursuing separate procurement
programs rather than SOS programs;
! reduce the possible need for private-sector LSIs by building back up the
defense civilian and military acquisition workforces, and have DOD
assume the role of the LSI, and require that DOD manage all SOS
programs.
! require that certain conditions be met before a private-sector LSI can be
used on an acquisition program (analogous to conditions set for use of
the multi-year procurement program);
! require that LSI arrangements include features to ensure transparency,
prevent conflicts of interest, prohibit self-certification, require
independent assessments, and facilitate meaningful periodic competitions
of the LSI role;11
! institute additional or stricter reporting requirements for programs being
executed by LSIs;
11 Options for facilitating meaningful periodic competitions of the LSI role could include, among
other things, requiring the system being acquired to use open architecture standards and meet the
same acquisition preferences as those required for separate acquisition programs.

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! require DOD and other federal agencies to share lessons learned
regarding programs executed with private-sector LSIs.
! prohibit the use of private-sector LSI’s in future acquisition programs.
Legislative Activity
In the first session of the 110th Congress, the Accountability in Government
Contracting Act of 2007 (S. 680) was introduced in the Senate (February 17, 2007) and
referred to the Committee on Homeland Security and Governmental Affairs. The purpose
of the bill is to ensure proper oversight and accountability in federal contracting. Section
125 of the bill would direct the head of the Office of Federal Procurement Policy to
recommend regulations to control the use of lead system integrators, as described here.
Section 125. Lead System Integrators.
(a) Study- Not later than 180 days after the date of the enactment of this Act, the
Administrator for Federal Procurement Policy shall develop a government-wide
definition of lead systems integrators and complete a study of the use of such
integrators by executive agencies.
(b) Recommendations- Not later than 180 days after the study under subsection (a) is
completed, the Administrator for Federal Procurement Policy shall submit to Congress
recommendations for regulations to control the use of lead systems integrators to
ensure that they are used in the best interests of the Federal Government.
On March 15, 2007, S. 889 was introduced and referred to the Senate Commerce,
Science, and Transportation Committee. The bill is in the first step of the legislative
process and the text of the legislation is not yet available. Media sources report that the
bill would require the Coast Guard to terminate its Deepwater LSI contract.12
In the second session of the 109th Congress, a provision enacted in P.L. 109-364
prohibits contractors who serve as LSIs from having any direct financial interest in the
development or construction of any individual platform, system, or element of any SOS,
with certain exceptions.13
12 Lipowicz, Alice. “Kerry bill would torpedo Deepwater program.” Washington Technology,
Mar. 19, 2007.
13 Section 807 of H.R. 5122, the FY2007 John Warner National Defense Authorization Act.

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