Wednesday, November 10, 2010

"Cheating" for acquisition cost savings? Or: Contested procurement -- An allegory

Dumb, tl;dr allegory here. Skip ahead for the actual news.

Because composing idiotic, overly drawn-out metaphors at 0100 is a way better idea than going to sleep, I want to share a story with you today. (Seriously, fight through it, and at least fake a chuckle.) Once upon a time, there was a family with two sons. The older one -- let's just call him "Army" -- has gotten a lot of good gifts in the last few years, as his folks have been making good money and wanted to spoil him. The younger one -- I know it's weird, but his name is "Air Force" -- gets plenty of good loot, too. But he's the younger kid, and we all know what happens with younger kids: sometimes you have to settle for hand-me-downs.

Seriously, though: Army and Air Force have pretty generous parents. The kids get all kinds of toys and clothes and balls and bats and whatnot, but on top of that, they even get an allowance! "Do whatever you want with it," their folks say, with the usual warnings about spending it all in one place. But what happens when you spoil your kids? Well, you know how this goes: the kids spend their money like damn fools. They buy crap that's too expensive. They buy crap that doesn't work. They buy crap that never shows up in the mail. Basically, they buy a whole bunch of crap, but Mr. and Mrs. Congress -- that's the parents, weirdly enough -- they just keep on bumping up that allowance.

Then one day, completely out of the blue, disaster strikes: Mr. Congress loses his job. Worse yet, summer's coming, and  Army and Air Force are wee little ballplayers. Army's been at it for a couple years, so he's got all the gear, but you know kids -- he's looking for the flashy new model. And Air Force is growing up quick, so he can't even get his little tyke's paw into last year's glove, and he definitely needs a new one. Rough timing, though, with dad getting sacked and all. But those crazy kids managed to stash some cash away in their piggybanks, so they're off to the sporting goods store.

Momma didn't raise no fools, and you just wouldn't even believe the price tag on a Mike Young Hot Corner Synthetic Leather Web Gem Special these days. But Army's got an awesome idea: "hey little bro, I've got this perfectly awesome glove that I don't even really want anymore, and I'm getting a new mitt anyway. And look, this glove is WAY TOO BADASS for some little joke t-ball league, and it's probably a little bit too big for you, and man, Air Force, you little t-ball kids don't even catch the ball with your gloves anyway! But I've got a deal for you: gimme your allowance, and I'll give you my big boy glove. It's a hell of a deal."

This sounds pretty good to Air Force. Sure, Army's right: the glove is way too big, and it's way too fancy for a t-baller. But he'll grow into it, and it saves him spending all day in the mall trying to find a glove he can afford with his meager savings. (No, obviously, he didn't use the word "meager." He's a kid, FFS.) Plus, mom and dad are gonna love this, right? Two allowances, two gloves, no old, unwanted gloves get thrown in the trash.

But then you're never going to guess what happened: DAVID AXE CAME ALONG AND CALLED THIS INNOCENT LITTLE T-BALL KID A "CHEATER" FOR BUYING HIS BROTHER'S OLD GLOVE AND SAVING IT FROM THE TRASH HEAP WHEN ARMY WAS GONNA GET A NEW ONE ANYWAY. And he puts pressure on Mr. and Mrs. Congress to continue needlessly enriching the sporting goods store, because after all, they haven't bought and replaced enough expensive crap from that joint already, and good god, can you even imagine how much more cash they're going to drop in there when these kids get old enough for football? But the parents relent in the face of media criticism, Air Force gets spanked for "cheating," he learns the lesson that it's a bad idea to try to keep your cash in the family instead of pouring it into the sporting goods racket, and the natural order of things is restored when Mr. Congress gets a new job and spends a silly sum on 83 sets of Callaway X-24s for Air Force to play China Golf and Country Club when let's be serious, the damn kid doesn't even like golf in the first place.

Semi-serious, reasonably legitimate content below this point.

Acquisition folks can't win for losing these days. Programs must adapt to unstable, shifting requirements. They fall behind schedule, run over cost, and don't perform up to expectations. Some buys get slashed or cancelled altogether. (Some get shitcanned even without cost/schedule/performance problems when Capability Portfolio Reviews [pdf] decide that the capability on offer isn't affordable in present circumstances.) In light of expected budget stasis, the SECDEF tasks the services with figuring out ways to squeeze out a few extra bucks, pledging that those savings will be applied to the modernization accounts that are likely to get short shrift as a result of reduced topline budget growth. You get criticized for spending time and effort on systems that aren't tailored to the specific challenges of ongoing conflicts. You get criticized for wasting money on crap that doesn't work. You get criticized by industry for not spending enough time, effort, and money on crap that's useless for today's fight, but might come in handy when the balloon goes up with China. Put it this way: It's a hard-knock life if you're in the business of developing or acquiring new weapon systems.

So if you're a senior Air Force acquisition official, it must be particularly galling to click around the interwebz today and find that your efforts to satisfy mission requirements in the most effective legal manner are being described like this: "U.S. Military Cheats Gets Creative for Cost Savings." Defense News covered this in a more charitable manner a couple of weeks ago, but here's the basic story: the Air Force needs to replace some old helos that it uses to monitor its own ICBM sites from the air. Typically, when the military makes a major acquisition, the law mandates that requirements be specified and bids solicited from a number of competitors so as to ensure that the best system is procured for the lowest price -- that is, that the government is getting the best value for the taxpayers' dollar. (There are exceptions to this, but that's the general idea.) In this instance, it seems the USAF is going to take advantage of a 1932 law that allows government agencies to do a sole-source -- that is, noncompetitive -- acquisition if it's filling its need with goods from another government organization. Makes perfect sense, right? One agency gets rid of unwanted gear, another satisfies a requirement, there's a minimum of fuss and delay, and everybody's happy (except the industry guys who feel entitled to pitch their system any time a new buy is made), right? Seems like it to me, but David Axe feels differently.

7 comments:

  1. I agree. It's not too dissimilar from the US Marine Corps buying the same F/A-18s and M-16s that the Navy and Army develop.

    Though, Axe does bring up a good point in that a UH-60 might be too much helicopter for the job...the Eurocopter might be a better choice, though with it comes the need to create a massive training program and career track just for that one aircraft. So, in that sense, the UH-60 makes sense (personnel and logistics are always the sticking point)

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  2. Gulliver:

    As noted before, my posts of late have been sub-par, and I don't work in aerospace/defense (and/or acquisitions). That said, a couple thoughts. First, your allegorical skills rival those of Bunyan's Pilgrim's Progress. Second, and perhaps most on point, simply noting that having firms bid on projects and programs ensures the taxpayer's get the best value for their money may be only "half-true:" this is not perfect competition but monopolistic competition. The defense industrial base for certain platforms is simply not that big. Hence the ostensible benefits of proscribed acquisition rules may not be that large. Third, this *does* have to do with the defense industrial base - e.g., the Navy splitting the difference - and that is arguably *not* a bad thing. It might not be intentional, but one could argue that a pleasant byproduct of organizational behavior (nominally and perhaps actually self-centered and myopic) is that it fulfills a strategic need: preserving the defense industrial base that provides for larger ticket items, during an era of small wars.

    ADTS

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  3. I'm disappointed in the Ink Spots readership (save ADTS and his Bunyan comparison.) Bringing hilarity and hijinks to the acquisition world is deserving of praise!

    Good work, Gulliver. Next up, an asymmetrical warfare allegory.

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  4. Seriously, though: Army and Air Force have pretty generous parents. The kids get all kinds of toys and clothes and balls and bats and whatnot, but on top of that, they even get an allowance! "Do whatever you want with it," their folks say, with the usual warnings about spending it all in one place. But what happens when you spoil your kids? Well, you know how this goes: the kids spend their money like damn fools.


    Why stop at brothers Army and Airforce? Their civilian cousins have the middle names "Spend" and "Thrift".

    ANV: Didn't want to disappoint :)

    Hilarious and informative, Gulliver.

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  5. I've never heard the Economy Act called "barely legal." Makes it sound dirty. In fact, the military employs the Economy Act regularly. I read FAR 8.002 to say that Agency inventories and excesses are a required source of supply. (Can't believe I just cited the FAR.)

    But anyway, he's wrong obviously. The deal makes sense for everyone.

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  6. ADTS -- simply noting that having firms bid on projects and programs ensures the taxpayer's get the best value for their money may be only "half-true:" this is not perfect competition but monopolistic competition. The defense industrial base for certain platforms is simply not that big. Hence the ostensible benefits of proscribed acquisition rules may not be that large. Third, this *does* have to do with the defense industrial base - e.g., the Navy splitting the difference - and that is arguably *not* a bad thing. It might not be intentional, but one could argue that a pleasant byproduct of organizational behavior (nominally and perhaps actually self-centered and myopic) is that it fulfills a strategic need: preserving the defense industrial base that provides for larger ticket items, during an era of small wars.

    1. Absolutely agree that competition does not always produce best value, but it's safe to say that it's generally better than the alternative (when it comes to producing the best results on cost/schedule/performance measures).

    2. You're of course right that in many ways the possibility for effective competition within the defense industrial base is limited, particularly when it comes to certain types of advanced systems like fighter aircraft. That's a result of defense industry consolidation almost two decades ago (which, lest we forget, took place in an era of declining budgets and with the encouragement of the Defense Department), and also of the fact that there are certain high-end technical skills that are difficult to maintain and preserve without steady production. Which leads to the third point, something that you alluded to...

    3. As much as I like to give industry and its backers a hard time about this, there ARE real concerns about the shrinking or disappearance of certain sectors of the technical workforce, and in some instances a certain amount of "make-work" MAY even be justified as risk mitigation.

    I'm sort of drifting off point here, but this is one of the real challenges of trying to maintain a strong defense industrial base in a market-oriented country, one in which the idea of the command economy is anathema. There may be some value to significant industry consolidation, to aligning the decisions of those companies with government priorities through a mechanism that's more direct than market forces, to providing what amounts to government subsidies to the owners and maintainers of critical technical and industrial competencies. And so we end up with a defense industrial base that's not exactly free-market, not exactly private-sector, not exactly competition-driven, but neither is it state-owned or precisely state-directed. It can end up being the worst of both worlds. But I digress.

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  7. Keith --
    I've never heard the Economy Act called "barely legal." Makes it sound dirty. In fact, the military employs the Economy Act regularly. I read FAR 8.002 to say that Agency inventories and excesses are a required source of supply. (Can't believe I just cited the FAR.)

    But anyway, he's wrong obviously. The deal makes sense for everyone.


    Glad I'm not the only one. (Only dork who is familiar with acquisition regulations OR the only guy who thinks this is pretty common-sense, that is.)

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