Order Code RS22631
Updated June 6, 2008
Defense Acquisition: Use of Lead System
Integrators (LSIs) — Background, Oversight
Issues, and Options for Congress
Valerie Bailey Grasso
Specialist in Defense Acquisition Policy
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.
Supporters of the LSI concept argue that it is needed to execute such complex
acquisition efforts, and can promote better technical oversight and innovation. 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. H.R.
5658, the House-passed version of the FY2009 National Defense Authorization bill
contains a provision (Section 4203) that would prohibit federal executive agencies from
awarding new contracts for LSI functions in the acquisition of major systems, with
certain exceptions. P.L. 110-181/H.R. 4986, the FY2008 National Defense
Authorization Act, contains a provision (Section 802) that prohibits the awarding of
future contracts for LSIs. This report will be updated.
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 can
have broad responsibility for executing their programs, and may perform some or all of
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. Refer to 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/2006/2006_main.html].

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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) “Lead system integrators with system responsibility” — prime contractors
who develop major systems4 that are not expected at the time of the contract award, as
determined by the Secretary of Defense, to perform a substantial portion of the work on
the system and major subsystems; and (2) “Lead system integrators without system
responsibility” — 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
2 Generating program requirements is an important process in defining the mission, scope, and
direction of a major defense acquisition program. 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; the testing of systems by validating their appropriateness and interoperability; and
by performing functions usually undertaken by contracting or other acquisition officials.
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, 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.) Also, Section 807 of the National Defense Authorization Act
for 2007 required DOD to establish limitations on contractors acting as LSIs. The Director of of
Defense Procurement and Acquisition Policy has stated that only contractors who have no direct
financial interest in the development or production of an individual system or element of an SOS
will be eligible for a contract award as an LSI. (Report to Congress, Section 805 of the National
Defense Authorization Act for FY2007, Use of Lead System Integrators in the Acquisition of
Major Systems. Office of the Under Secretary of Defense for Acquisition, Technology &
Logistics, April 30, 2007, 2 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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of these programs have experienced problems, among them costs and schedule overruns,
and have been the subject of multiple congressional oversight hearings.
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 all
of 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 size and scope of DOD procurement activities. 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 overall system optimization. This is largely because private-sector firms
often have better knowledge and expertise, when 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
The House Armed Service Committee’s Subcommittee on Air and Land Forces
heard recent testimony from a GAO official on the Army’s decision to broaden the FCS
LSI role from development to production. He stated that:

By committing to the LSI for early production, the Army effectively ceded a key
point of leverage it had held — source selection — and is perhaps the final departure
from the Army’s initial efforts to keep the LSI’s focus solely on development.8
On April 17, 2007 the Coast Guard announced that it would gradually assume the
LSI role for the Deepwater program.9 Media reports stated that the Department of Justice
is investigating parts of the Deepwater program.10
Problems with the FCS and Deepwater programs have raised concerns regarding the
use of private-sector LSIs for executing large, complex defense acquisition programs.
7 Defense Acquisition Organizations: Status of Workforce Reductions. Report to the Chairman,
Committee on National Security, House of Representatives. Government Accountability Office,
GAO/NSIAD-98-161, June 1998, 20 pages. Also see “Report on the Federal Acquisition
Workforce, FY2003-2004,” Federal Acquisition Institute Report, Executive Summary, p. vii.
8 Defense Acquisitions: 2009 Review of Future Combat System Is Critical to Program’s
Direction. Statement of Paul L. Francis, Director, Acquisition and Sourcing Management before
the HASC Subcommittee on Air and Land Forces. GAO-08-638T, April 10, 2008, p. 9.
9 Merle, Renae and Hsu, Spencer. Coast Guard To Take Over “Deepwater” Move Wrestles
Control From Consortium of Contractors. Washington Post, April 17, 2007, p. D01.
10 DOJ Investigating Coast Guard’s Troubled Deepwater Program. Inside the Navy, April 23,
2007, Vol. 20, No. 16.

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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, GAO has performed audits
of the program’s cost, schedule, and performance. One of GAO’s concerns was that 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.
Congressional hearings on the Deepwater program have raised a number of oversight
issues. The DOD Inspector General (IG) reported on the increased Deepwater 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.
Also, the Defense Acquisition University has 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.”11
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
system 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.
11 House Transportation and Infrastructure Committee Hearing on the Coast Guard Deepwater
Program, April 18, 2007; Senate Committee Hearing of the Ocean, Atmospheres, and Fisheries
of the Coast Guard’s Subcommittee on Commerce, Science, and Transportation Committee,
February 14, 2007.

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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.
In particular, the self-certification issue has been raised in connection with the Deepwater
program. Earlier this year, Philip Teel, President of Northrop Grumman Ship Systems
testified that self-certification did not take place, except in some foreign contracts.12
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 recompeted
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.
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;
! 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;13
! institute additional or stricter reporting requirements for programs being
executed by LSIs;
12 Walsh, Bill. “Coast Guard report angers panel; Commandant is scolded for lack of oversight
of work on new flagship.” Houston Chronicle, January 31, 2007, p. A6. Walsh, Bill. “House
members react angrily to patrol boat problems.” Newhouse News Service, January 30, 2007.
13 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.
! 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.14
! implement the recommendations of the recent Gansler Commission on
improving the acquisition workforce.
Legislative Activity
H.R. 5658, the House-passed version of the FY2009 National Defense Authorization
bill, contains a provision (Section 4203) that would prohibit federal executive agencies
from awarding new contracts for LSI functions in the acquisition of major systems.
H.R. 4986, the FY2008 National Defense Authorization Act, contains a provision
(Section 802) that prohibits the awarding of future contracts for LSI functions for major
systems, effective October 1, 2010, and requires the Secretary of Defense to ensure that
the acquisition workforce is of the appropriate size and skill level to perform inherently
governmental functions related to the acquisition of major systems, with the goal of
minimizing and eventually eliminating the use of private contractors to perform the LSI
role. S. 80, the proposed Accountability in Government Contracting Act of 2007, would
require the development of a government-wide definition and study of LSIs.
H.R. 2722, the proposed “Integrated Deepwater Program Reform Act,” was passed
by the House; a companion bill by the same name (S. 924) has passed the Senate and
referred to the House. The bills would prohibit the use of a private LSI beginning two
years after enactment of the legislation, and (1) require that acquisitions for Deepwater
contracts are made under full and open competitions, with some exceptions; (2) add new
requirements for technical reviews and operational assessments; (3) require the Coast
Guard Commandant to appoint a civilian Chief Acquisition Officer; and (4) permit the
Department of Homeland Security (DHS) IG to privately interview Deepwater contractor
personnel. DHS IG Richard Skinner told the House Coast Guard subcommittee that it
would take at least two to three years before the Coast Guard could take over the LSI role
for Deepwater, noting that the service has to move carefully to build its expertise.15
14 U.S. Army. Urgent Attention Required: Army Expeditionary Contracting, Report of the
Commission on Army Acquisition and Program Management, November 1, 2007, p. 10, at
[http://www.army.mil/docs/Gansler_Commission_Report_Final_071031.pdf].
15 See the following sources: Coast Guard To Limit Award Terms Under New Deepwater
Contract. Defense Daily, June 13, 2007, Volume 234, Issue 51; Press Release from the House
Transportation and Infrastructure Committee. Oberstar and Cummings Introduce Deepwater
Program Reform Bill, June 14, 2007; Gallagher, Thomas L., Web Editor. Legislation Attacks
Coast Guard Costs. Traffic World, June 15, 2007; and “Deepwater: 120-Day Update.” Also, see
the statement and testimony of Richard L. Skinner, DHS IG, before the Committee on
Transportation and Infrastructure, Subcommittee on Coast Guard and Maritime Transportation,
U.S. House of Representatives, June 12, 2007.

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