President's Corner

Defense Benefits From Public-Private Cooperation

by Lt. Gen. Lawrence P. Farrell, Jr., USAF (Ret)

October 2003 — The business of defense has always benefited from the continuing dialogue and cooperation between government and industry. Now, as we face rising challenges and opportunities in the national defense arena, it is important that we strengthen this collaboration, in an effort to meet the Defense Department's ambitious goals of transforming the military into an even greater fighting force.

As most of you in the defense community already know, streamlined acquisition and rapid deployment of new technology have become top priorities at the Defense Department. The services have taken on various reform efforts, aimed at shortening the acquisition cycle and lowering the cost of procurement, operations, and maintenance of weapon systems. Furthermore, as the United States confronts a growing price tag for the war on terrorism and looming budget deficits, military programs are under mounting pressure to get a bigger bang for the buck.

Industry's role in these reform initiatives is critical and well recognized by the Department of Defense. That point was made clear during the recent Navy-Marine Corps Industry CEO Conference, hosted by NDIA in Norfolk, Va. The conference, although focused on Navy programs, illuminated enduring issues concerning defense acquisition that, for the most part, could be applied to the other services as well. It was an outstanding conference, characterized by carefully considered industry input and candid exchange between industry leaders and Secretary John Young, and his RDA staff. The breakout sessions, which addressed a range of issues, were co-chaired by industry and Navy representatives, followed by joint out-briefs.

Most of the issues I will outline are not new, but the Navy's continuing interest in a dialogue with industry is realizing progress and offers the promise of more dialogue. One of the conference highlights in this regard was the Navy's report on issues from the previous year’s CEO conference, indicating progress to date and work remaining.

This year's concerns focused on profit, omnibus contracting, supply chain, spiral development, partnering, international programs, and improvement of Navy acquisition processes.

In the profit area, one topic of discussion was funding stability. This is a particular concern for industry, which must deliver a return on investment to shareholders and relies on steady funding to maintain a healthy bottom line. Also, there is little incentive for industry to invest in facility upgrades. Discussion revolved around aligning risk with reward and trading requirements to maintain cost. Recommendations were to stabilize funding with increased use of multi-year contracts. Finally, the Navy needs to develop a long-term strategy for dealing with profits, recognizing that industry has to earn adequate returns on equity and investment.

One cost-saving initiative in the Navy has been the use of “omnibus contracts,” which consolidate multiple requirements into one. The conferees delineated several issues: large numbers of highly fragmented contracts, failure to capture total costs and effectiveness, mandatory subcontract levels, and failure to obtain credit for small businesses under prime contracts. This is another area where industry and government have more analysis to do, including developing templates and obtaining better data on these contracts.

Contractors also will be put to the test when it comes to providing services in a performance-based logistics (PBL) arrangement. The Navy is searching for the best way to rate contractors' performance and how to set metrics for PBL. One method suggested is to tailor performance-based contracts to weapons systems and the operational environment. It was also observed that most contracts of this kind worked well in Operation Iraqi Freedom.

The Navy also is grappling with efforts to modernize its business management functions via “enterprise resource planning.” ERP will eventually encompass finance, program management, maintenance, supply chain, and wholesale logistics. The Navy is currently well along in this effort with a number of pilots in operation. The technology is progressing rapidly, but the Navy and industry must work together to figure out how best to transition from legacy systems to the ERP world and, most importantly, how to migrate the data. It's a complex endeavor that will require continued cooperation between government and industry. Partnering will be key to success.

The need to expedite the development and deployment of new systems was a topic of much discussion at the conference. Under the spiral development concept, the Navy intends to deliver increased capability in short spirals without defined end-states, permitting easier insertion of technology to the war fighters. This process is characterized by multiple configurations, open architectures, and more complex support challenges. The resource and requirements processes are not as compatible as they need to be, nor is there an adequate template to adapt the testing process in support of this concept. Conferees suggested the Navy designate several pilots and work with industry to design a successful business model.

Further dialogue also is expected in the area of partnering. Conference participants agreed that government-industry partnering on specific projects can yield positive results. But there are a host of issues that need to be explicitly addressed. For example, effective partnering requires adequate provision for protection of intellectual property and more stable programs. Also, potential conflict of interest issues conceivably could preclude some government functions from partnering agreements. It was recommended that Navy formalize the concept and document the process. Partnering is one of those things that are easy to talk about, but hard to do.

The future competitiveness of the industry, meanwhile, hinges a great deal on international programs. There was much discussion on the barriers of lengthy disclosure and license reviews, as well as exportability constraints. Briefers emphasized the need to continue the good fight in reducing disclosure and review processes. They also pointed out the benefits of using rules sets to expedite the process. Finally, it was suggested that systems need to be designed for exportability up front. This has potentially the best hope of promoting successful international programs. All saw international programs as a requisite of a healthy industrial base.

A final group looked at the Navy acquisition as a whole. The goal is to move toward an incentive-structured, multi-vendor environment with incentives and a focus on experimentation. The objectives are a smooth transition from experimentation to fielded capabilities and a way to incorporate testing into spirals. Great value is seen in pilot programs, templates, documentation of “how to” and a good incentive structure on both government and industry sides.

In summary, the healthy discussion that took place at the CEO conference, in many ways, serves as a perfect example of what NDIA does on a daily basis to facilitate the exchange of ideas between government and industry, in an ethical and legal environment.

It is encouraging to see that, even though government and industry do not see eye to eye on every issue, they can come together and engage in a productive dialogue for the benefit of the nation's armed forces and the health of our industrial base.

NDIA salutes the Navy for sponsoring such an open forum and participating in a candid dialogue with defense industry. We look forward to continuing the discussion and to making progress on the issues that have been identified.

Please e-mail your comments to lfarrell@ndia.org.

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President's Corner

Defense Benefits From Public-Private Cooperation

by Lt. Gen. Lawrence P. Farrell, Jr., USAF (Ret)

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