The House and Senate on Tuesday struck a deal on the defense authorization bill, agreeing on a conference report that contains an array of acquisition reform provisions meant to increase accountability and make it easier for the Pentagon to quickly procure new technologies.
The chairmen of the congressional armed services committees, Sen. John McCain (R-Ariz.) and Rep. Mac Thornberry (R-Texas), have make acquisition reform a focal point of the National Defense Authorization Act (NDAA)—the first the lawmakers have helmed since taking charge of their committees this year. Between the two versions of the NDAA, the conference committee had to reconcile 122 acquisition policy provisions, Senate and House armed service committee aides told reporters during a Wednesday briefing.
Perhaps most controversially, the conference report keeps the Senate Armed Service Committee (SASC)’s proposal to move milestone decision authority from undersecretary of defense for acquisition, technology and logistics (AT&L) and place it instead with the service acquisition executives.
Starting in fiscal year 2017, the service acquisition executives will have milestone decision authority for new-start programs spearheaded by a single service. The undersecretary of defense for acquisition, technology and logistics will retain the milestone decision making authority for joint programs and existing programs, a SASC aide said. A program also would be transferred back to AT&L’s control if it violates the Nunn-McCurdy Amendment by netting a cost overrun of 15 percent or more.
The service chiefs and secretaries will also play a larger role in the acquisition process. Under the new rules, those officials would have to sign off on performance, cost and technical tradeoffs after a program achieves Milestone A and B. Service chiefs must also concur on any change to a program’s requirements.
The hope is that bestowing the services with greater control over acquisition will lead to greater accountability, the SASC aide said. And if the services do not step up and keep programs on budget, they will be subject to cost overrun penalties.
According to the proposed legislation, the services would have to pay three percent of any cost overrun going forward for any program started after the Weapon Systems Acquisition Reform Act of 2009, including joint programs. The money would be deposited to an AT&L fund for prototyping efforts. And unless the program is able to correct itself, the service will have to keep paying for that cost overrun every year that it exists.
That provision will not apply to current cost overruns on legacy programs, but the SASC aide noted that current existing overruns would net about $6 billion for the prototyping fund.
“The services probably don’t want to lose $6 [billion] to $12 billion or whatever it would be down the road if they screw up. That might lead to program cancellations early,” he said. But that might not be a bad thing, he added. “Maybe we should shoot some of the programs early.”
If the 2016 NDAA becomes law, the Air Force’s Long Range Strike Bomber may be one of the first programs affected by the change in milestone decision authority, depending on when a contract is signed, the aides said.
Other reforms in the conference report seek to reinvigorate the acquisition process, thus helping the Defense Department reach its goal of greater engagement with innovative Silicon Valley firms and startup companies. The aides said the legislation would give the Pentagon new ways to rapidly field technology, buy commercial products and hire talent from the private sector.
The proposed legislation would grant new authorities to hire entry-level science, technology, engineering and mathematics graduates straight out of college, the aide said. The Defense Department also was given an “enhanced pay authority” to hire senior program managers for a limited period of time at double the salary usually authorized.
“They can get someone from the private sector for a five-year stint and pay them close to market rates,” SASC aide said. “They could go hire someone from Google.”
The committees also attempted to address some of the barriers that keep commercial industry from doing business with the Pentagon, the aide said. For instance, it included an amendment that clarifies that commercial firms can keep their intellectual property.
If the NDAA is passed, commercial items designations will remain permanent. The bill also outlines a process the Defense Department can go through to gauge whether it is paying a fair or reasonable price for something.
Commercial companies typically shy away from providing the same kinds of detailed cost breakdowns that big defense contractors like Lockheed Martin [LMT] and Boeing [BA] provide, but the Pentagon has more frequently demanded such data in recent years, the SASC aide said. The conference bill lays out several ways the department can authenticate that it’s paying a fair price–such as comparing a product to similar items on the market–without requiring detailed cost information.
“At a certain level, the government can ask for that data,” he said. “But the problem that has been happening is instead of going through this list of alternatives.”
The conference report contains language to streamline existing regulations, allowing program managers to better control their own programs, particularly before a milestone decision. Currently, when a milestone decision approaches, program managers “spend more time running between the cubicles between the A ring and E ring [of the Pentagon] then they do managing their own programs,” the House Armed Services Committee aide noted.
The bill would give the Defense Secretary wider authority to waive acquisition laws to rapidly field a needed technology, including offensive and defensive cyber capabilities. He or she can also transfer milestone decision authority for a program back to AT&L.
The acquisition reforms included in the NDAA have been broadly supported by both parties. However, President Barack Obama and congressional Democrats oppose the bill as a whole because it increases wartime spending to circumvent budget caps that apply to defense and nondefense discretionary spending.
In an attempt to force a wide scale budget deal that would raise the spending caps, Obama has threatened to veto any spending measure that boosts the defense budget without including additional funding for other discretionary accounts.
During a Wednesday news conference, Defense Secretary Ashton Carter reiterated that he would recommend the president veto the NDAA.
Although he didn’t specifically comment on the acquisition reform piece, Carter said that “several provisions of it—and this not new, this is longstanding—do not take into account what has been the judgment of the department about reforms that we think are needed.”