By Emelie Rutherford
The new acquisition-reform law’s mandate for the Department of Defense (DoD) to tighten regulations regarding organizational conflicts of interest has spurred anxiety among some defense-industry denizens and frustration among Pentagon watchdogs who wanted tougher guidelines.
Defense analysts and executives said this week they have been busy studying the law that tweaks how the Pentagon develops, buys, and oversees weapon systems since President Obama signed it last Friday.
Observers said the actual impact of several of the statute’s provisions–including those that establish a Pentagon director of cost assessment and program evaluation, add steps to the development process to control requirements growth, require more competing through the lifecycle of programs, and tighten Nunn-McCurdy rules for systems that suffer cost breaches–won’t be apparent before new people, rules, and regulations are in place.
Some defense firms will be paying close attention over the next nine months to see how, as the law says, Defense Secretary Robert Gates will revise federal acquisition regulations to “tighten existing requirements for organizational conflicts of interest (OCI) by contractors in major defense acquisition programs.”
Among other things, the statute says the regulations must greatly curtail the practice of one company developing or building a major defense program while it or an affiliate also provides systems-engineering-and-technical-assistance (SETA) input to the Pentagon for the effort. The law also directs the Pentagon to address organizational conflicts of interest that could occur as a result of lead-system integrator contracts and prime contractors awarding major subsystem contracts to their own business units or affiliates of the same parent company.
Cord Sterling, vice president of the Arlington, Va.-based Aerospace Industries Association, said the conflict-of-interest language in the law looks “workable.” He noted that it calls for flexibility in the new regulations to ensure the Pentagon can still receive advice on systems architecture and systems engineering from industry when needed.
“The question now comes when (Pentagon officials) do the regulations,” Sterling said, “and whether there is a thorough review scrub and analysis of what they have (in terms of needed science-and-engineering skillsets), what they don’t have, on that standpoint and therefore implement a program that provides them that access to the skillsets they need; or whether…somebody says, ‘Nope, this is the way we’re going,’ and doesn’t do the analysis, and therefore tries to implement a set of regulations that would prevent them that access” to the needed expertise.
The original bill, drafted by Senate Armed Services Committee (SASC) Chairman Carl Levin (D-Mich.) and Ranking Member John McCain (R-Ariz.), called for outright banning companies that provide SETA work on programs from also developing or building them. The language was relaxed after the SASC received pushback from industry, Levin acknowledged. Now the law states the forthcoming regulations should prohibit contractors from developing or constructing weapon systems for which they provide SETA services; yet it also allows for “limited exceptions” to ensure the DoD receives needed systems architecture and systems engineering advice.
Winslow Wheeler, the director of the Straus Military Reform Project at the Washington-based Center for Defense Information and a critic of the law, said the SASC “weakened down the only provision (the bill) had with any teeth in it.”
“It was okay as originally written, because it barred contractors and their subsidiaries from being involved in the assessment of their own stuff; now the door is flung wide open,” Wheeler said, predicting the Pentagon will opt for lax OCI regulations.
Travis Sharp, a military policy analyst at the Center for Arms Control and Non-Proliferation in Washington, likewise said he is concerned the conflict-of-interest language was changed before the law was passed.
Lawmakers “asked the Pentagon to get its own house in order instead of imposing order from the outside,” Sharp said.
Loren Thompson, the chief operating officer of the Lexington Institute in Arlington, Va., and an adviser to defense firms, said he believes organizational-conflicts-of-interest cases should be weighed individually.
“There are some circumstances in which it’s obvious that a company should not be overseeing and evaluating performance because they’re so intimately engaged in the work that they’re monitoring,” Thompson said. “There are plenty of other cases where they’re quite far removed from the work, and their only real role on the contract is to monitor.”
Because of consolidation in the defense industry, the practice of companies providing SETA services for programs they or affiliates are helping to build appears to be increasing, pundits said.
“I have heard a number of concerns expresses from small businesses who have felt that their business base might be undermined some by the OCI provisions so that they can’t work on some things where they might really be able to contribute,” said Paul Kaminski, a former under secretary of defense for acquisition and technology in the Clinton administration.
Charlie Stuff, the executive vice president for Cobham Corporate North America in Arlington, Va., said his British firm’s U.S. lawyers are closely tracking how the conflict-of-interest rules pan out.
“As widely diversified as we are and as many companies as we having working in various areas, we have to look at it,” he said, adding his company has no concerns about any current organization conflicts of interest.