PRESIDENT'S BLUE RIBBON COMMISSION
ON DEFENSE MANAGEMENT

Chairman

Ju n e 3 0 , 1986

Mr. David Packard

The P r e s i d e n t
TheWhiteHouse
Washington, D . C . 20500

Members
Mr. Ernest C. Arbuckle
Gen. Robert H . Barrow
USMC (Ret)

Dear Mr. P r e s i d e n t :

Mr. Nicholas F. Brady

Mr. Louis W. Cabot
Mr. Frank C. Carlucci

Mr. William P . Clark

Mr. BarberB. Conable. Jr.
Gen. Paul F. Gorman
USA (Ret)
Mrs.Carla A. Hills
Adm. James L. Holloway
USN (Ret)

Dr. William J. Perry
Mr. Charles J. Pilliod. Jr.
Lt. Gen. Brent Scowcroft
USAF (Ret)

Dr.Herbert Stein
Mr. R. James Woolsey

Director
Mr. Rhett B. Dawson

On behalfofyourBlueRibbonCommissionon
I h a v et h eh o n o rt op r e s e n tt h i s
DefenseManagement,
F i n a lR e p o r t ,w h i c hc o m p i l e st h ed e t a i l e df i n d i n g s ,
c o n c l u s i on s ,a n dr e c o m m e n d a t i o n sp r o d u c e db yo u ry e a r l o n gs t u d y .
They a d d r e s s ,i na d d i t i o nt ot h ea r e a so n
which we h a v e r e p o r t e d p r e v i o u s l y ,
several a d d i t i o n a l
a s p e c t so fd e f e n s e
management.
The F i n a lR e p o r t i s i n t e n d e dt o a s s i s t t h e
E x e c u t i v ea n dL e g i s l a t i v eB r a n c h e s
as well a s i n d u s t r y
i ni m p l e m e n t i n g a broadrangeofneededimprovements,
i n c l u d i n g t h e many Commissionrecommendationsendorsed
byyou
i nA p r i l1 9 8 6 .
I t s t i t l e - - "A Q u e s tf o r
E x c e l l e n c e " -- r e f l e c t s a b a s i c management p h i l o s o p h y ,
work
a s well a s a s t a n d a r d t o w h i c h t h o s e e n g a g e d i n t h e
o fo u rn a t i o n ' sd e f e n s em u s ta l w a y sa s p i r e .
W i t ho u te x c e p t i o n ,t h er e c o m m e n d a t i o n so fo u r
F i n a lR e p o r th a v et h es u p p o r to fa l l
members o ft h e
Commission. A l l members h a v ec o n t r i b u t e di n v a l u a b l yt o
t h i s work,and
I am d e e p l y g r a t e f u l f o r t h e i r u n s t i n t i n g
e f f o r t s . We a r e most f o r t u n a t et oh a v eh a dt h ea s s i s t a n c eo f a t a l e n t e d a n d d e d i c a t e d s t a f f .

We h a v e t r i e d t o c o n d u c t
a s t u d yo ft h e
i m po r t a n td i m e n s i o ny o ui n t e n d e d .
W
e a r eg r a t i f i e d by
of o u r
y o u rc o n f i d e n c ei nu sa n dy o u rs u p p o r t
recommendations. We hope t h a t ,u n d e ry o u rl e a d e r s h i p ,
t h e y will h e l p r e a l i z e a new e r a i n d e f e n s e management
f o rt h eb e n e f i to fa l lA m e r i c a n s .

I

7 3 6 Jackson Place. N.W.

Washinqton. D.C. 2 0 5 0 3

*

(202)395-7365

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PRESIDENT’S BLUE RIBBON COMMISSION
ON DEFENSE MANAGEMENT

Chairman
Mr. David Packard

J u n e 3 0 , 1986
Members
Mr. Ernest C. Arbuckle
Cen. Robert H. Barrow
USMC (Ret)

Dear Mr. S e c r e t a r y :

Mr. Nicholas F. Brady
Mr. Louis W. Cabot

Mr. Frank C. Carlucci
Mr. William P. Clark
Mr. Barber B. Conable. J r

Cen. Paul F. Gorman
USA (Ret)
Mrs. Carla A. Hills
Adm. James L. Holloway
USN (Ret)
Dr. William J. Perry

Mr. Charles 1. Pilliod, Jr.
Lt. Gen. Brent Scowcroft
USAF (Ret)
Dr. Herbert Stein
Mr. R. James Woolsey

Director
Mr. Rhett B. Dawson

On b e h a l f o f t h e P r e s i d e n t ’ s B l u e R i b b o n
CommissiononDefenseManagement,
I h a v et h ep r i v i l e g e
t o p r e s e n t a c o p yo fo u rF i n a lR e p o r t ,w h i c h
was
s u b m i t t e d t o t h e P r e s i d e n tt o d a y .
W
e hope t h i s F i n a l R e p o r t
will a s s i s t t h e
DepartmentofDefensetoimplement
a rangeofmanagementimprovements.
Among t h e s ea r et h e
many Commission
r e c o m m e n d a t i o n sw h i c ht h eP r e s i d e n td e s i g n a t e di n
A p r i l1 9 8 6f o rq u i c ka n dd e c i s i v ei m p l e m e n t a t i o n .F o r
t h i s p u r p o s e , I w o u l db ep l e a s e dt oc o n t i n u et o
work
w i t hy o ui na n y
way p o s s i b l e . I look f o r w a r d t o j o i n i n g
y o u ,a st h eP r e s i d e n tr e c e n t l yr e q u e s t e d ,i n
a progress
r e p o r t i n e a r l y 1987.

for the
P l e a s ea c c e p to u rs i n c e r et h a n k s
r e s p o n s i v e manner i nw h i c hy o u r
Office, a n dt h e
Department of D e f e n s e g e n e r a l l y , a s s i s t e d i n t h e
workof
t h e Commission.

DavidPackard

TheHonorableCasparWeinberger
S e c r e t a r yo fD e f e n s e
Washington, D. C . 2 0 3 0 1

7 3 6 Jackson Place. N.W.

Washmgton. D.C. 2 0 5 0 3

(202) 395-7365

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A Quest for Excellence
Final Report to the President

by the President's
BlueRibbonCommission
on Defense Management

~

J u n e 1986

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TABLE OF CONTENTS

..........................................

Page
xi

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

xu

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1

Foreword by DavidPackard

ChapterOne:NationalSecurityPlanningandBudgeting

.............

7

. . . . . . . . . . . . . . . . . . 33

ChapterTwo:

Military OrganizationandCommand

Chapter Three:

AcquisitionOrganizationandProcedures . . . . . . . . . . . . . . 39

ChapterFour:Government-IndustryAccountability

. . . . . . . . . . . . . . . . . . 73

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LIST OF APPENDED MATERIAL
Appendix”
A.

Detailed Recommendations, President’s Blue Ribbon Commission on
Defense Management

B.

Executive Order 12526 (July 15, 1985)

C. National Security Decision Directive 219 (April 1, 1986)’ White House
Summary

D. President’s Special Message to the Congress (April 24, 1986)
E.

Recommended Process for National Security Planning and Defense
Budgeting

F.

A Comparison of Cost Growth in Defense and Non-Defense Programs

G. An Illustrative Organization of the Acquisition Staff of the Secretary of
Defense

H. Wendy T. Kirby, Expanding the Use of Commercial Products and “CommercialStyle” Acquisition Techniquesin Defense Procurement: A Proposed Legal
Framework (1 986)
I.

Logistics Management Institute, The Department of Defense and Rights in
Technical Data( 1986)

J.

T h e Navy Demonstration Project: An Alternative Personnel Management
System

K. Survey of Department of Defense Acquisition Workforce( 1986)
L.

U.S. National Survey: Public Attitudes on Defensp Management (1986)

M. Defense Industry Initiatives on Business Ethics and Conduct
N.

Ethics Resource Center, Final Report and Recommendations on Voluntary
Corporate Policies, Practices, and Procedures Rvlatingto Ethical Business
Conduct ( 1986)

0. Peat, Marwick, Mitchell & Co., Report on Survey ojDefense Contractors’ Internal
Audit Processes ( 1986)

P.

Arthur Andersen & Co., Study of Government Audit and Other Oversight
Activities Relating to Defense Contractors( 1986)

*Appended material is contained in a separateAppendix to iinal Report.

/’

,

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FOREWORD
By David Packard, Ch‘lirman

Less than one year ago, President Reagan establishedhis Blue Ribbon
Commission on Defense Management to “stud) theissues surrounding defense
its findings and recommendations.”
management and organization, and report
In February 1986, the Commission submitted an Interim Report to the President.
Intended as a blueprint for overall improvementin defense management, the
Interim Report provided initial recommendations concerning key aspects of national security planning and budgeting, militar), organization and command,
acquisition organization and procedures, and government-industry accountability.
This Final Report compiles the Commission’s full findings and recommendations
Exin each of these areas.I wish to add a final personal word on the “Quest for
cellence”-a standard to which defense management mustalways aspire.
we have found for
As the Commission concludesits efforts, the urgent need
reforms in defense management should not obscure accomplishments
of recent
years. T h e American people justly continue tohave high confidence in the
United States militaryas an institution, andin the ability of our men and women
in uniform to defend the nation. The morale and fighting
ability of our Armed
Forces have achieved a level higher than at any timein my recent memory.
Despite many positive achievements, however, I believe the importance of
revitalizing defense management has become ever more apparent. The paramount purpose of theCommission’s work has been to identify and developsolutions for those structuralproblems-and to e<lse the stifling burdens of regulation, reporting, andoversight-that have long limited thesuccess of the many
people in government and industry on whose talents and dedication the nation’s defense depends. Innovationsin American industrial management, yielding products of ever higher quality and lower cost, have provided
key insight:
a
human effort must be channeled to good purpose through sound centralized
policies, but free expressionof people’s energy. enthusiasm, and creativity must
he encouraged in highly differentiated settings
T h e Commission’s recommendations are intended to help establish strong
centralized policies that are both soundin themselves and rigidly adhered to
throughout the Departmentof Defense (DoD). In any large organization,policies must be executed through discrete structures. In the large, complex enterprise of national defense,centers of management excellence dedicated to advancing

xi

 DoD’s overall goals and objectives. T h e Commission’s recommendations,if fully
implemented, will help create an environment In which each DoD component
can achieve ever higher standardsof performance by summoning forth the enin accomplishing its
thusiasm and dedicationof every man and wonlan involved
mission. Excellence can flourish, I believe, only where individuals identify with
a team, take personal pride in their work, concentrate their unique efforts, develop specialized know-how, and aboveall co~lstantly explorenew and better
ways to get theirjob done. Freedom andincentives of just this sort, President
Reagan has observed, “unleash the drive and entrepreneurial genius that are
the core of human progress.”
This technique-establishment of strong centralized policies implemented
through highly decentralized management structures-has its legacies at DoD.
as one
On this model, for example, Navy-industry teams working together
brought the Polaris submarine-launched missilc system from initiation to successful operational test in one-third the time it would take now. In today’s advance development work, centersof excellence should include select program
management and industry teams workingmorct closely together on new prototype weapons. If DoD truly is to fly and know the cost before it buys, the early
phase of research and development mustbe on(: of surpassing quality, following
procedures and meeting timetables distinct from those
of approved production
programs.
Despite formidable bureaucraticobstacles, I believe that a centers-of-excellence approach cantangibly improve productivity and quality. If
widely adopted
and steadfastly supported, it could achieve revolutionary progress throughout
defense management. The potential applications are almost without number. In
1984, for example,DoD began to apply this concept to managingits installations
as potential centers of excellence, by according installation commanders much
greater latitude to run things their own way, cut. through red tape, and experiment with new ways of accomplishing their missions. As a result, commanders
and their personnel have found more effective means
to do their jobs, identified
wasteful regulations, and reduced costs while irnproving quality. The program
has shown the increased defensecapability that comes by freeing talented people from over-regulation and unlocking theirnative creativity and enthusiasm.
Excellence in defense management will nor and can not emerge by legislation or directive. Excellence requires the opposite-responsibility and authority
placed firmly in the hands of those at the workinglevel, who have knowledge
and enthusiasm for the
tasks at hand. To accomplish this,ways must be found to
restore a senseof shared purpose and mutual confidence among Congress,
DoD, and industry. Each must forsake its current ways of doing business in
favor of a renewed quest for excellence.

xii

 ~~

Congress must resist its inveterate tendencv tolegislate management practices and organizational details forDoD. Excellence in defense management will
not come fromlegislative efforts to control and arrange the minutest aspects of
DoD’s operations. Congress can moreusefully ( ontribute by concentrating on
larger, often neglected issues of overall defenst. posture and military performance.
DoD must displace systems and structures that measure qualityby regulatory compliance and solve problems by executive fiat. Excellence in defense
management can not be achievedby the numerous management layers, large
staffs, and countless regulations in place today. I t depends, as the Commission
has observed, on reducing all of these by adhcring closely to basic, commonsense principles: giving a few capable people the authority and responsibility to
do their job, maintaining short
lines of communication, holding peopleaccountable for results.
Defense contractors andDoD must each assume responsibility for improved
self-governance to assure the integrity of the contracting process. Excellence in
of government audidefense managementwill not be achieved through legions
tors, inspectors, and investigators. It dependso n the honest partnership of
thousands of responsible contractors and DoD, each equally committed to
proper control of its own operations.

...

Xlll

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Summary

Final Report
to the President

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I

n July 1985, this Commission was charged by the Presidentto conduct a
defense management study of important dimension. Our findings and
recommendations,* summarizedbelow, concern major features of nationalsecurity planning and budgeting,military organization and command, acquisition
organization and procedures, and government-industry accountability. This
summary represents,with certain important additions, the blueprint for overall
as our Interim Report to the Presimprovement in defense management presented
ident on February 28, 1986.

National Security Planning and Budgeting
T h e Commission finds that thereis a great rleed for improvement in the
way we think through andtie together oursecurity objectives, what we spend to
achieve them, and whatwe decide to buy. The entire undertaking for our nation’s defense requires more and better long-range planning. This
will involve
concerted action by o u r professional military, the c-ivilian leadership of the
Department of Defense, the President, and the Congress.
‘Today, there is no rational system whereby the Executive Branch and the
011 national military stratCongress reach coherent and enduring agreemelit
egy, the forces to carry it out, and the funding that should be provided-in
light of the overall economy and competing clairr~s0 1 1 national resources. T h e
absence of such a system contributes substantiall) t o the instability and uncertainty that plague our defense program. Thest.
r’ause imbalances i n o u r military forces and capabilities, and increase the costs of procuring military
equipment.
Better long-range planning must be based o n military advice of an order
not now always available-fiscally
constrained, fi)~-w;~rd
looking, and fully integrated. This advice must incorporate the best possible assessment of o u r overall
military posture vis-a-vis potential opponents, a t d must candidly evaluate the
performance and readiness of the individual Sel-vices and the Unified and
Specified Commands.
T o conduct such planning requires a sharpcwed focus on major defense
missions in the Department’s presentation, and (:o~gress’ review, of the defense budget. T h e present method of budget review, involving duplicative

*The Commission’s recommendations are set forth
in full arld detailed form at AppendixA to
this Final Report. All appended material is collected in a separate Appendix to Final Report.

xvii

 effort by numerous congressional committces and subcommittees, centerso n either the minutiae of line items or the gross tlollar allocation to defense, and
obscures important matters o f strategy, o1)er;ltional concepts, and key defense
issues. As Senator (;oldwater, Chairman o f ’ the Senate Armed Services (’, o m mittee, recently observed, “The budget
ocess (1istort.st.he nature o f congressional oversight b y focusing prirnarily o n I he question o f how much Iwfore we
answer the key questions of what for, whv, ;itld how well.”
Of greater concern, congressional appro\al o f the budget o n a year-t.o-year
basis contributes t o and reinf0rces the L)c.partrnent’s own historical penchant
for defense managemenl. by fits antl starts. Anticipated defense dollars are a l waysin flux. Individual programs must he hastily and repeatedly ; ~ ( ‘ o t n ~ ~ ~
dated t o shifting overall budgets, irrespective o f ‘ military strategy a n t l planning.
T h e net effect o f this living day-t.o-day is I t w defense and more cost. Although
often hidden, this effect issignif’icatlt--allcl it can be avoided.
Biennial budgeting, authorization ancl ;tppropriation o f ’ major programs
not annually but o n l y at key milestones, a 1 1 c l ;I f’ocus on strategy and operational concepts instead of line items
are anlong the most important changes
that could be made t o improve defense planning. ‘They would enhance the
al
policy.
congressional role i n framing good n a t i o ~ ~ security
Budgeting based o n strategy and oper.;ltion:d concepts also would provide
a far greater inlprovcment i n the perfi)r111,11~~
o f the Office of‘ the Secretary of‘
o ~ ~ Office. I n general, we
Defense than would any legislated r - e o I - g a l ~ i z ~ ~o ft’ithat
believe, (hngress should permit t h e Secrcbtal-y t o organize his Office ;IS he
chooses t o accomplish centralized policy f0rnlulation and decentralized inlplementation within t h e Department.
T h e Comrnissiorl concludes that new procedures are required t o help the
Administration and the Congress do t he rlewssar-y long-range plal1rlirlg and
n1eaningfully assess what military forces : I I T needed to meet o u r national security objectives. Public and of‘ficial debate inust be brought t o bear o n these
larger defense policy questions. ‘The Commission strongly urges adoption of a
process that emphasizes the element of so1tnd, professional military advice provided within realistic confines of anticipatc4 long-term funding.

Recommendations
‘To institutionalize, expand, and link a series o f critical cieterrninations
within the Executive Branch and Congrehs, we recommend a process that
would operate in substance as follows:

xviii

 Defense planning would start witha comprehensive statement of national
security objectives and priorities, based on recommendations of the National
Security Council (NSC).
Based on these objectives, the President would issue, at the outset of his
Administration and thereafter as required, provisional five-year budget levels to the Department of Defense (DoD). These budget levels would reflect
competing demands on the federal budget and projected gross national product and revenues and would come from recommttndationsof the NSC and the
Office of Management and Budget.
The Secretary of Defense would instruct the Chairman of the Joint
Chiefs of Staff (JCS) to prepare a military strategy for the national objectives,
and options on operational concepts and key defense issues for the budget
levels provided by the President.
The Chairman would prepare broad military options with advice from
the JCS and the Commanders-in-Chiefof the Unified and Specified Commands (CINCs). Addressing operational concepts and key defense issues
(e.g., modernization, force structure, readiness, sustainability, and strategic
versus generalpurpose forces), the Chairman would frame explicit trade-offs
among the Armed Forces and submit his recommendations to the Secretary
of Defense. The Secretary of Defense would make such modifications as he
thinks appropriate and present these to the President.
The Chairman, withthe assistance of the JCS and the Directorof Central
Intelligence, would prepare a net assessment of the effectiveness of United
States and Allied Forces as compared to those of possible adversaries. The
net assessment would be used to evaluate the risks of options and would accompany the recommendations of the Secretary of Defense to the President.
The President would select a particular military program andthe associated budget level. This program and budget level would be binding on all elements of the Administration. DoD would then develop a five-year defense
plan and a two-year defense budget conforming to the President’s
determination.
The President would submit to the Congress the two-year budget and the
five-year plan on which it is based. Congress would be asked to approve the
two-year budget based upon this plan. It would authorize and appropriate
funding for major weapon systems at the two key milestones of full-scale engineering development and high-rate production.

xix

 DoD would present the budget to Congress on the basis of national strategy and operational concepts rather than line items. The details of such presentation would be worked out by the Secretary of Defense and appropriate
committees of Congress.

Military Organization
and Command
In ourInterim Report, the Commission recommendedthe changes in rnili tary
organization and command described below. l'hese were designed
to assure
unified action by our Armed Forces. On April 24, 1986, in a Special Message to
Congress, the President endorsed these recornmendations and requested early
enactment of legislation required to implement thern.As the culmination of' a
major legislative effort begun in the Houseo i ' Representatives in 1982 and
joined in the Senateby passage of the Barry (;oldwater Departmentof Defense
Reorganization Act of 1986, we anticipate erxtctment ofour basic
recommendations by the end of 1986.

Recommendations
Current law should be changed to designate the Chairman of the Joint
Chiefs of Staff (JCS) asthe principal uniformed military advisor to the President, the National Security Council, and the Secretary of Defense, representing his own views as well as the corporate views of the JCS.
Current law should be changed to place the Joint Staff and the Organization of the Joint Chiefs of Staff under the exclusive direction of the Chairman, to perform such duties as he prescribes to support the JCS and to respond to the Secretary of Defense. The statutory limit on the number of
officers on the Joint Staff should be removed to permit the Chairman a staff
sufficient to discharge his responsibilities.
The Secretary of Defense should direct that the commands to and reports
by the Commanders-in-Chiefof the Unified and Specified Commands
(CINCs) should be channeled through the Chairman so that the Chairman
may better incorporate the views of senior combatant commanders in his advice to the Secretary.
The Service Chiefs should serve as members of the JCS. The position of
a four-star Vice Chairman should be established by law as a sixth member of

xx

 the JCS. The Vice Chairman should assist the Chairman by representing the
interests of the CINCs, co-chairing the Joint Requirements and Management
Board, and performing such other duties as the Chairman may
prescribe.
The Secretary of Defense, subject to the direction of the President,
should determine the procedures under which an Acting Chairman is designated to serve in the absence of the Chairman of the JCS. Such procedures
should remain flexible and responsive to changing circumstances.
Subject to the review and approval of the Secretary of Defense, Unified
Commanders should be given broader authority to structure subordinate
commands, joint task forces, and support activities in a way that best supports their missions and results in a significant reduction in the size and
numbers of military headquarters.
The Unified Command Plan should be revised to assure increased flexibility to deal with situations that overlap the geographic boundaries of the
current combatant commands and with changing world conditions.
For contingencies short of general war, the Secretary of Defense, with
the advice of the Chairman and the JCS, should have the flexibility to establish the shortest possible chains of command for each force deployed, consistent with proper supervision and support. This would help the CINCs and
the JCS perform better in situations ranging from peace to crisis to general
war.
The Secretary of Defense should establisha single unified command to
integrate global air,land, and sea transportation, andshould have flexibility
to structure this organization as he sees fit. Legislation prohibiting such a
command should be repealed.

Acquisition Organization
and Procedures
Action within the Administration andin Congress to improve national
security planning and budgeting andmilitary organization-as recommended
by the Commission-will provide the element of
stability required for substantial
improvement of the acquisition system. This elementis critical, and has been
missing. While significant savings can be and have heen made through better
procurement techniques, more impressivesavings will come from eliminating
the hidden costs that instability imposes.

xxi

 ~~~~~~

~~

~~~~~~~~~~

O u r study of acquisition reveals, and o u r collective experience fully confirms, that there are certain common characleristics of
successful commercial
and governmental projects. Short, unambiguous
lines of communication
among levels of management, small staffs o f highly competent profession;ll
personnel, an emphasis on innovation anti productivity, smart buying practices,
and, most importantly, a stable environment {)f' I)lanning and funding-all are
characteristic of efficient and successful man;lgelrlent.
These characteristics should be hallmarks o f ' defense acquisition. 'l'hey are,
unfortunately, antithetical t o the process the (htlgress and the Departnlellt of
Defense have created to conduct much of' dtbter~seacquisition over the years.
With notable exceptions, weapon systems take l o o long and cost too much t o
produce. Too often, they d o not perfornl as promised or expected. 'I'he reasons are numerous.
Over the long term, there has been chrotlic instability in top-line f'unding
and, even worse, in programs. 'r'his eliminate> k e v economies of scale, stretches
out programs, and discourages contractors f'rotn rnakirlg the long-term investments required to improve productivity.
Federal law governing procurement has I )ecornr: overwhelmingly cornplex.
Each new statute adopted by Congress has splwlled more administrative regulation. As law and regulation have proliferatecl, defense acquisition has 1)ecome
ever more bureaucratic and encumbered 1)y tlnproductive layers of management and overstaffing.
Responsibility for acquisition policy has I)ecorne fragmented. 'There is today no single senior official in the Office o f ' the Secretary of Deftmse (OSl))
working full-time to provide overall supervisron of the acquisition system.
While otherwise convinced that the Secretarv .;hould be left free to organize his
Office as he sees fit, the Commission cotdudt's that the demands of the : q u i sition system have become so weighty as t o 1c.cluil-e organizational change
within that Office.
In the absence of such a senior OS11 off'icial, policy responsibility has
tended to devolve to the Services, where at titlies i t has been exercised without
the necessary coordination or uniformity.
Authority for acquisition execution, and .lc-countability for its results, have
become vastly diluted. Program managers ha1.e i n effect been deprived of control over programs. They are confronted instcd l ~ ynever-ending bureaucratic
obligations for making reports and gaining al)pt.ovals (,hat bear no relation t o
program success.
Deficiencies in the senior-level appointmc~rltsystem have complicated the
recruitment of top executive personnel wit11 tllt~us'tria~
anct acquisit.ion experience. Recent steps t o improve the professionJism of military acquisition personnel have been made within the 1)epartnwtlt o f ' Defense and reinforced b y
xxii

 legislation. T h e existing civilian personnel rnanagerrlellt system has not, however, allowed similar improvements i n career paths and education for civilian
acquisition personnel. ‘1-0 attract and retain a good w o r k force requires a more
flexible system for management of contracting ofi‘ic.ersand other senior acquisition personnel---one comparable to t h e successful svstern for scientists and engineers recently demonstrated in the Navy’s so-called China Lake personnel
project. Major innovations in personnel management and regulations are
needed. The Commission’s recommendations in this critical area can andshould
be acted upon quickly and areof the highest priority.
A better job of. determining requirements and estimating costs has been
needed at the outset of weapons development. More rnoney and better engineering invested at the front end will get more relial)lcx alld better performing
weapons into the field more quickly and cheaply. 1;or example, recent improvements in budgeting to most-likely cost have denlotlstrateci that this approach
can result in a reduction i n overruns.
All too often, requirements for new weapon systems have been overstated.
This has led to overstated specifications, which has led t o higher cost equipment. Such so-called goldplating has become deeplv emt)etIded i n o u r system
today. The current streamlining effort i n the 1)eikllse Ikpartment is directed
at this problem.
Developmental and operational testing have bc.etl l o o divorced, the latter
has been undertaken too late i n the cycle, and prototvpes have heen used and
tested far too little.
I n their advanced development projects, the Se1.vic.t.s too often have duplicated each other’s efforts and disfavored new ideas a l l d systems. ‘T’he Defense
Advanced Research Prqjects Agency has not had a sui‘i’icient role in hatdwatx
experimentation and prototyping.
Cornrnon sense, the indispensable ingredient tor ;I successful system, has
not always governed acquisition strategies. More coml)etition, for exanlple, is
beneficial, but the mechanistic pursuit of competition f O I its own sake would be
inefficient and sacrifice quality-with harmful results. hlulti-year p~-ocurement,
baselining, and the use of non-clevelopmental i t e r n c a l l entail costs to management flexibility, but would yield far greater benef’its i l l program st.ability. rI’he
Defense Department has initiated some baselining f the 13-1 is an example) and
has made progress in gaining congressional accept:tnc’e of multi-year
contracting.
I n sum, the Commission finds that there is legttirrlate cause for dissatisfiiction with the process by which the Department o f Ikf‘erlse and Congress buy
military equipment and material. We strongly disagree, however, with the commonly held views of what is wrong and how i t must be fixed. T h e nation’s tleI
feme programs lose far more to inefficient proc:etiures than t o fraud and
xxiii

 dishonesty. T h e truly costly problems are thoseof’overcomplicated organization
and rigid procedure, not avariceo r connivance.
Chances for meaningful improvement will come not from more regulat.ion
but only with major institutional change. Conltnon sense must be made t o prevail alike in the enactments of Congress and the operations of the Ileprtrtment.
We must give acquisition personnel more author it^ to do their jobs. If u.e make
it possible for people to do the right thing t h e first time and allow them to use
their common sense, then w e believe that thc. 1)epartment can get by with far
fewer people.
T h e well-publicized spare parts cases are o n l y one relatively srrlall aspect of
a far costlier structural problem. Each spare I w t s case has its own peculiarities,
but there are several major recurring causes that are systemic in nature. M a n y
of these causes have been identified
by the 1)ef’ense Department.
It is undoubtedly important to buy spare parts with care and at reasonable
cost. It is yet more important not t o let the SlJare parts cases lead us to ignore
larger problems or, even worse, to aggravate them.Policy makers must address
the root causes of inefficiency, not dwell o n tnargirlal issues. T h e prescription
we offer for those larger problems will, we twlieve, result in savings on major
weapon systems and minor spare parts alike

Recommendations
Notwithstanding our view that the Secretaryof Defense should be free to
organize his Office as he sees fit, we strongly recommend creation by statute
of the new position of Under Secretary of Defense (Acquisition) and authorization of an additional Level I1 appointment in the Office of the Secretary of
Defense. This Under Secretary, who should have a solid industrial background, would be a full-time Defense Acquisition Executive. He would set
overall policy for procurement and research anddevelopment (R&D), supervise the performanceof the entire acquisition system, and establish policy for
administrative oversight and auditing of defense contractors.
The Army, Navy, and Air Force should each establish a comparable senior position filled by a top-level civilian Presidential appointee. The role of
the Services’ Acquisition Executives would mirror that of the Defense Acquisition Executive. They would appoint Program Executive Officers (PEO),
each of whom would be responsible for a reasonable and defined number of
acquisition programs. Program Managers for these programs would be responsible directly to their respective PEO and report only to him on program
matters. Each Service should retain flexibility to shorten this reporting chain
even further, as it sees fit.
xxiv

 Establishing short, unambiguous lines of authority would streamline the
acquisition process and cut through bureaucratic red tape. Bythis means, the
Department of Defense (DoD) should substantially reduce the number of acquisition personnel.
Congress should work with the Administration to recodify all federal
statutes governing procurement into a single government-wide procurement
statute. This recodification should aim not only at consolidation, but more
importantly at simplification and consistency.

DoD must be able to attract, retain, and motivate well qualified acquisition personnel. Significant improvements, along the lines of those recommended in November 1985 by the National Academy of Public Administration, should be made in the senior-level appointment system. The Secretary
of Defense should have increased authority to establish flexible personnel
management policies necessary to improve defense acquisition. An alternate
personnel management system, modeled on the China Lake Laboratory demonstration project, should be established to include senior acquisition personnel and contracting officers as well as scientists and engineers. Federal
regulations should establish business-related education and experience criteria for civilian contracting personnel, which will provide a basis for the
professionalization of their career paths. Federal law should permit expanded opportunities for the education and training of all civilian acquisition personnel. This is necessary if DoD is to attract and retain the caliber of
people necessary for a quality acquisition program.
The Joint Requirements and Management Board
(JRMB)should be cochaired by the Under Secretary of Defense (Acquisition) and the Vice Chairman of the Joint Chiefs of Staff. The JRMB should play an active and important role in all joint programs and in appropriate Service programs by
defining weapons requirements, selecting programs for development, and
providing thereby an early trade-off between cost and performance.
Rather than relying on excessively rigid military specifications, DoD
should make much greater use of components, systems, and services available “off the shelf.” It should develop new or custom-made items only when
it has been established that those readily available are clearly inadequate to
meet military requirements.

A high priority should be given to building and testing prototype systems and subsystems before proceeding with full-scale development. This
early phase of R8cD should employ extensive informal competition and use
streamlined procurement processes. It should demonstrate that the new

 technology under test can substantially improve military
capability, and
should as well provide a basis for
making realistic cost estimates priorto a
full-scale development decision. Thisincreased emphasis on prototyping
should allow us to “fly and know how much it will cost before we buy.”
The proper use of operational testing is critical to improving the operations performance of new weapons. We recommend that operational testing
begin early in advanced development and continue through full-scale development, using prototype hardware. The first units that come off the limitedrate production line should be subjected to intensive operational testing and
the systems should not enter high-rate production until the results from these
tests are evaluated.
To promote innovation, the role of the Defense Advanced Research Projects Agency should be expanded to include prototyping and other advanced
development work on joint programs and in areas not adequatelyemphasized
by the Services.
Federal law and DoD regulations should provide for substantially increased use of commercial-style competition, relying on inherent market
forces instead of governmental intervention. To be truly effective, such competition should emphasize quality and established performance as well as
price, particularly for R8cD and for professional services.
DoD should fully institutionalize “baselining” for major weapon systems
at the initiation of full-scale engineering development. Establishment of a
firm internal agreement or baseline on the requirements, design, production,
and cost of weapon systems will enhance program stability.
DoD and Congress should expand the use of multi-year procurement for
high-priority systems. This would lead to greater program stability and lower
unit prices.
DoD mustrecognize the delicate and necessary balance between the
government’s requirementfor data and the benefitto the nation that comes from
protecting the private sector’s proprietary
rights. That balance mustexist to
foster technological innovation and privateinvestment which is so important
in developingproducts vital to our defense. DoD should adopt a data rights
policy that reflects thefollowing principles:
0

If a product has been developedwith private funds, the government
should not demand, asa precondition for buying that product, unlimited data rights even if the government provides the only market. The
government should acquire only the data necessary for installation,
operation, and maintenance.

xxvi

 0

If a product is to be developed with joint private and governmentfunding, the government'sneeds for data should be defined during contract
negotiations. Government contribution todevelopment funding should
not automatically guaranteeit rights to all data.

0

If a product is developed entirely with governmentfunds, the government owns all the rightsto it but mayunder certaincircumstances make
those rights availableto the privatesector.

The President, through the National Security
Council, should establish a
comprehensive and effective national industrialresponsiveness policyto support the full spectrum of potential emergencies. TheSecretary of Defense,
with advice from theJoint Chiefs of Staff, should respond with a general
statement of surge and mobilization requirements
for basic wartime defense
industries, and logistic needs to support those industries and the essential
economy. The DoD andService Acquisition Executives should consider this
mobilization guidance in formulating theiracquisition policy, and program
managers should incorporate industrial surge and mobilization considerations in program execution.

Government-Industry
Accountability
In recent years there has been increasingpublic mistrust of the performance of private contractors in the country's defense programs. Numerous reports of questionable procurement practices have fostered a conviction, widely
shared by members of thepublic and by many in government, that defense contractors place profits above legal and ethical responsibilities. Others argue that
contractors have been unfairly discredited througti ill-conceived official actions,
of public sentiexaggerated press, and mistaken public dialogue. The depth
ment and prospectof continuing tensions and divisions between government
and industry are cause for concern.
Our nation relies heavily upon the private sector in executing defense p o l icy. (hoperation between government and indusr ry is essential i f private enterprise is to fulfill its role i n the defense acquisitiotl pr-ocess. Contractor or government actions that undermine public confidelice i n the integrity o f ' the
contracting process jeopardize this needed part1 rersllip.
Aggressive and sustained enforcement o f . civll and criminal laws governing
procurement punishes and deters misconduct 111, t h e few, vindicates the vast
majority who deal with the government lawfully, and recoups losses to the
Treasury. As President Reagan emphasized in ptlblic remarks announcing the
xxvii

 formation of this Commission, “Waste and fraud t w corporate contractors are
more than a ripoff of the taxpayer-they’re a t)lou’ t o the security of our nation. And this the American people cannot ;111d should not tolerate.” Specific
measures can and should be taken to make ci\ il and criminal enforcement. still
more effective.
Management and employees of companies t l l a t contract with the Defknse
Department assume unique and compelling ol)ligations t o the people o f ‘ our
Armed Forces, the American taxpayer, antl 0 1 1 1 - I l a t i o n . ‘l’hey must apply (antl
be perceived as applying) the highest standards o f ‘ business ethics and conduct.
Significant improvements in contractor self-goc.el-rlance, addressing prot>lenls
unique to defense contracting, are required. ( :ontractors have a legal and
moral obligation to disclose t o government a 1 1 1horities misconduct discovered
as a result of self-review.
Improvements also should be made in the Department’s administrationof
current standards of conduct formilitary personnel and civilian employees. Adto address
ditional enforcement and compliance, and complementary efforts
the respective ethical concerns of government and industry, are required.
Despite an unquestioned need for broad ;dministrative oversight of contractor performance, defense programs have t o o often suffered f r o m lack of
clear direction and cooperation among oversight agencies. Proliferation of
uncoordinated contractor oversight-both
xIItlinistrative and congressional-has added unnecessary cost and inefficiency i n the procurement
process.
Government action should not impede eff’orts b y contractors to improve
their own performance. T h e Commission is concerned that., for example,
by Ikfknse Department agencies
overzealous use of investigative subpoenas
may result in less vigorous internal corporate auditing.
T h e Services and the Defense Logistics A,qency are authorized to suspend
or debar contractors, prohibiting the award o f new government contracts for a
particular period. Suspension and debarment
arc powerful administrative
tools. Existing regulations provide insufficient guidance, however, as t o when
and how these sanctions should be used to prolccl legitimate government intcrests. If poorly administered, used for impermissible purposes, or applied t o o
broadly, the sanctions can foreclose importanr sources
o f ’ supply and itlflict
substantial harm o n responsible contractors. 11 unif0rm policy and more precise administrative criteria are required to assure predictable and equitable application of these sanctions throughout the Dcxpart tnent of Defense.

xxviii

 Recommendations
T h e Commission’s recommendations address each of the above aspects of‘
the Defense Department’s relations with industr\,-law enforcement, corporate
governance, official ethics, and contractor oversight.
We recommend continued, aggressive enforcement of federal civil and
criminal laws governing defense acquisition. Specific measures can be taken
to make enforcement still more effective, including the passage of Administration proposals to amend the civil False Claims Act andto establish administrative adjudication of small, civil false claims cases.
To assure that their houses are in order, defense contractors must promulgate and vigilantly enforce codes of ethics that address the unique problems and procedures incident to defense procurement. They must also develop and implement internal controls to monitor these codes of ethics and
sensitive aspects of contract compliance.
The Departmentof Defense (DoD) shouldvigorously administer current
ethics regulationsfor military and civilian personnel to assure that its employees complywith the same high standards expected of contractor personnel. This effort should includedevelopment of specific ethics guidance and
specialized trainingprograms concerning matters of particular concern to
DoD acquisition personnel, includingpost-government relationships with defense contractors.
Oversight of defense contractors must be better coordinated among the
various DoD agencies and Congress. Guidelines must be developed to remove undesirable duplication of official effortand, where appropriate,to encourage sharing of contractor data by audit agencies.
Government actions should foster contractor self-governance. DoD
should not, for example, use investigative subpoenas to compel such disclosure of contractor internalauditing materials as would discourage aggressive
self-review. The new Under Secretary of Defense (Acquisition) shouldestablish appropriate overall audit policy for DoD agencies and generally supervise the DoD’s oversight of contractor performance.
Suspension and debarment should be applied only to protect the public
interest where a contractor is found to lack “present responsibility” to contract with the federal government. Suspension and debarment should not be
imposed solely as a result of an indictment or conviction predicated upon
former (not ongoing) conduct, nor should they be used punitively. The Federal Acquisition Regulation should be amended to provide more precise

xxix

 criteria for applyingthese sanctions and, in particular, determining present
responsibility.Administration of suspensionand debarment atDoD should be
controlled by a uniform policy promulgated by the Secretaryof Defense.

xxx

 Final Report
to the President

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Introduction
1. Background
In July 1985, the Commissionwas chargeci by the President to conduct a
defense management study of important dimension, including:
the budget process, the procurement systen),legislative oversight, and
the organizational and operational arrangements, both formal and
informal, among the Office of the Secretary o f Defense, the
Organization of the JointChiefs of Staff, the Unified and Specified
Command systems, the Military Departments, andCongress."
T h e Commission held its first organizational meeting on August 15-16,
1985, and received briefings from Secretaryof Defense Weinberger and other
officials. Following this meeting, Commissioners were organized intosix panels:
Strategy and Resource Planning; Military Orgarlization and Command;
Acquisition; the Human Element-Personnel; (;onduct and Accountability; and
Implementation.
In all, between August 1985 and June 1986 the Commission had some 30
day-long workingsessions. Included among these werefive days of public
hearings at which the Commission took testimolly on a variety of defense
management issues. Witnesses at these and other meetings included members of
the Senate and Houseof Representatives, officials of the Office of the Secretary
of Defense (OSD) andMilitary Departments, inclustry leaders and associations,
public interest organizations, defense experts, and private citizens. In response
to its published requests, the Commission received and considered numerous
public comments on awide range of acquisition-.relatedissues. T h e Commission
also met with the three former Presidents,as well as former Secretaries of
Defense and Assistants to the President for National Security Affairs.
We
received presentations from a broad rangeof current and formercivilian
officials and military officers. Among these were Chairmen of the Joint Chiefs
of Staff, Service Secretariesand Service Chiefs, combatant and
logistics
commanders, other military leaders, and high-ranking
civilian officials of the
OSD and Military Departments. We also had tht. benefit ofnumerous briefings
by major defense research centers.
*See Executive Order 12526 (July 15, 1985), included as Appendix B to this Final Report.

1

 On February 28, 1986, the Commission presented its Interim Report to the
President, which contained our initial findings and recommendations. These
recommendations were offeredas a single blueprint for overall improvement
in
defense management. They have provided the framework for three subsequent
Reports to the President: Defense Acquisition, which we submitted on April 7 ,
1986; National Defense Planning and Budgeting, submitted June12; and Conduct
and Accountability, submitted June30. T h e prescmt document, A Quest for
Excellence: Final Report to the President, compiles our detailed findings,
conclusions, and recommendations from each
of these separate submissions.

I I . Purpose
We have tried to take a broad and searchinglook at defense issues, and to
address the root causes of defense problems.Our overall blueprint for change
flows from certain enduring propositionsof sound national security policy,
effective government, andbasic management.
The Armed Forces of the United States are now and for the foreseeable
future an essential bulwark against the advanc.eof tyranny. The purpose set
forth two centuries ago by the drafters of the Constitution-to “provide for the
with Armed Forces of the
common defense”-is one thatwe can meet today only
utmost strength and readiness. Maintaining peace and freedom requires
nothing less.
To achieve this military capability, a sense
of shared purpose must prevail in
relations between the Executive Branch and the Congress, and between
government and defense industry.Public and private institutions must
cooperate well, to serve the national good rather than mere partisanship or
special interest. T h e spirit of cooperation needed t o promote the common
defense is today in jeopardy. This vital spirit rnllst be preserved. Like the
effectiveness of our forces, it cannot simply be taken for granted.
T h e United States’ defense effort is an enormous and complex enterprise.
It poses unique challenges-to plan sensibly f o ~an uncertain future, to answer
new and unexpected threats to our security, to husband our technological and
industrial capacities and resources. Meeting these challenges will require, we
believe, a rededication by all concerned to somebasic principles of management.
Capable people must begiven the responsibility and authority to do their job.
Lines of communication must be kept as shorras possible. People on the job
must be held accountable for the results. These me the principles that guide our
recommendations on defense organization and acquisition. They apply whether
one is fighting a war or managing a weapons program.
T h e present structure of the Department of Defense (DoD)was established

 by President Eisenhower in 1958. His proposed reforms, which sprang from
the hard lessons of command in World War I1 and from the rich experience of
his Presidency, were not fully accomplished. Intervening years have confirmed
the soundness of President Eisenhower’s purposes.T h e Commission has sought
to advance on theobjectives he set for DoD.
Together, our recommendations are designedto achieve the following
significant results:

Overall defense decision-makingby the Executive Branch and the Congress
can be improved.

Our military leadership can be organized and chartered to provide the
necessary assistance for effective long-range planning.

Our combatant forces can be organized and commanded better for the
attainment of national objectives.

Control and supervisionof the entire acquisitionsystem-including
research, development, and procurement-call be strengthened and
streamlined.

Waste and delay in the developmentof new weapons canbe minimized, and
there can be greater assurance that
military equipment performs as expected.

DoD and defense industry can have a more honest, productive partnership
working in the national interest.

111. Implementation
Having called in our earlier Reports for new
a
spirit of cooperation among
the Executive Branch, Congress, and industry,
we are especially gratified to note
that important actions have been and are being taken,
by each of these

3

 institutions which share responsibility for the nation’s defense, to implement the
Commission’s recommendations.

On April 1, 1986, the Presidentissued National Security Decision
Directive (NSDD) Number 2 19, directing DoD and other responsible
Executive agencies to implementvirtually all of those recommendations
legislative action.* O n
contained in our Interim Report that do not require
the same day, the Secretary
of Defensc issued detailed instructions to
DoD for this purpose.
On April 24, 1986, the President sent to Congress a SpecialMessage
requesting the early enactment of1egisl.ltion in order to implement the
balance of the recommendationsin the Commission’s Interim Report. This
included statutory designation of the (:hairman of the Joint Chiefs of
Staff as the principalmilitary adviser to the President, the Secretaryof
Defense, and the National Security Council;
provision for the
Chairman’s exclusive direction of the Joint Staff and the Organization of
the Joint Chiefsof Staff; and creation of‘the
new position of Under
Secretary of Defense forAcquisition at 1,evel I1 of the Executive
Schedule. The Presidentalso asked Congress to take recommended
action to simplify and consolidate procurement laws, develop procedures
for the authorization and appropriation of defense budgets on a bienn
basis, encourage the use of multiyear procurement, and support
milestone funding for major weaponsystems.?
Both the House and Senate havepassed legislation, now awaiting
conference, which substantially achieves the objectives of o u r Zntvrim
Report with respect to the role and authority
o f . the Chairmanof the Joint
Chiefs of Staff, the establishment of Vice
a
Chairman, and the authority
of Commanders-in-Chief of the Unified Commands. By late June 1986,
both the House and Senate had approved
legislation establishing the
Under Secretary of Defense for
Acquisirion at Level 11.

*The unclassified portions of NSDD 2 19, as announced I I I summary form by the White House,
are includedas Appendix C to thisFinal Report.
?The President’s April 24 Special Message t o Congress is included as Appendix 11 to this Fznal
Report.

4

 A substantial number of leading defense contractors recently have
pledged to adopt and implement principles of business ethics and
conduct that acknowledge corporate responsibilities under federal
procurement laws. This important initiative, discussed morefully in o u r
report on Conduct and Accountability,is in keeping with the Commission's
recommendations on improvements in (:ontractor self-governance.
It is only through a willingness to changet y both public and private
institutions that our recommendationswill achieve their ultimate purpose of
restoring stability to defense programs, saving money, and fielding better
military forces. These steps toward implementation are a promising beginning.
But much more remains to be accomplished. As an aid to the complete
implementation of our recommendations,we offer the succeeding portions of
our Final Report.

5

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. 

Chapter One

National Security
Planning and Budgeting

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1. Introduction

A

mong the majortasks assigned to the Commissionby the President in July
1985 was the study of resourceallocation for defense, including the
legislative process. While national security planning is primarily the
responsibility of the Executive Branch, principally the President, the National
Security Council, the Secretary of Defense, and the Joint Chiefs of Staff, the
defense of the nation requires constructive collaboration between the President
and Congress. Although the planning process has improved in recent years, we
believe that further reforms are required. Reforms must deal
with three major
problems in the current national security planning and budgeting process: the
need to relate military plans more adequately toavdable resources; the
instability of the defense budgetprocess in both thc Executive Branch and
Congress; and theinefficient role of Congressin the review of the defense
budget. O u r work has addressed each of these proldems
in turn.
role of
This Chaptersets forth our findings and recommendations* on the
the President in national security planning, a new process for planning national
military strategy, and an improved defense budget
process in the Executive and
Legislative Branches. (A schematic representation of the process we propose is
provided in Appendix E to this Final Report.)

*Amplifying o n o u rInterim Report, these were presented earlierin National Security Planning und
Budgeting: A Report to the President,submitted June 12, 1986.
9

 II. The Role of the President in National
Security Planning

I

n ourZnterim Report, the Commission fount1 that there is a need for more and
better long-range planning to bring together the
nation’s security objectives,
the forces needed to achieve them, and the rcsourcesavailable to support those
forces. It is critically important that this relationship be clearly established
through a nationalmilitary strategy. At the same time,military strategy cannot
be carried outin isolation from the larger questions of the nation’s overall
foreign policy and its domestic economic and fiscal objectives. Within the
Executive Branch, only the President can make the decisions necessary to
balance these elements of national policy.For this reason, the Commission sees
a need to streamline the present extensive process for defense planning and
budgeting within the Executive Branchby establishing a mechanism for early,
firm Presidential guidance.
Today, the President provides national sccurity
objectives to the Executive
Branch in the form of National Security Decision Directives (NSDDs) that are
issued through the National Security Council(NSC). Formulated by an
incoming Presidentas policy guidance, theseclirectives are updated periodically,
either as a result of a continuing review of major national securityissues o r as
additional guidance in response to crises.
Historically, this process has yielded unclear guidancefor national security
planning becauseobjectives have been stated in NSDDs without recognition of
the limits to fiscal resources that arefinally made available. Because of the lack
of early Presidential guidance onfiscal limits, defense resource plans are subject
to debate and changewithin the Administration u p to the moment the
President makes final decisions before sendinghis annual budget to Congress.
These changes can ripple throughout the entire
five years of the planning
period, resulting in annual change-sometimes quite large-to each year of the
Five-Year Defense Program.
Based on Presidential guidance containedin NSDDs, the Secretary of
Defense currently issues his own Defense Guidance document, early in the
budget planning year, for development of detailed programs and budgets
by
the Military Departments and agenciesof tlre Department of Defense (DoD).
T h e Secretary’s Defense Guidance incorporatesfiscal guidance to theMilitary
Departments and Defense Agencies for a five-year period.His guidance is built
on a judgment
of the threats to national interests and the adequacy of our

10

 military forces to meet those threats. Butit also reflects such changeable nearterm factors as the previous year’s congressional decisions, thecurrent budget
debate in Congress, guidance from theOffice of Management and Budget
(OMB) to DoD based on Presidentialdecisions during the previousyear’s
budget formulation, and recent international e\ ents
with national security
implications.
Late in the year, two events can causeextellsive changes to the Secretary’s
budget plan. First, Congress makes decisions
on the budget submitted ittoat the
beginning of each calendar year. Typically, these decisions are postponed
by
Congress as long as possible. Congress usually does not enact a defense budget
until after the fiscal year has begun on thefirst o f October, with obvious
disruptive effects not only for execution of the budget, butalso for planning a
defense program for subsequent years. Recentlv, moreover, congressional
decisions increasingly have diverged not only from the President’s budget
proposal, but also from Congress’own pronouncements on future defense
budgets as projected in earlier concurrent budget resolutions.
Second, in November of each year before the President transmits
his
budget to Congressin late January, OMB conducts an independent
review of
the Secretary’s budget plan, drawing upon updated economic projections,
recently enacted congressional budget decisio~ls, and the President’s budget
priorities. As late as December, based on issues taised by the OMB review, the
President often directs changes to the Secretary’s budget plan that affect
thousands of line items and require major revisions to the
Five-Year Defense
Program. Such Presidentialdecisions on the defense budget,so close in time to
presentation of the President’s budget to
Congrctss, do not allow the Secretary of
Defense sufficient time to reviewand advise the President of their effects on the
national defense program.
In the Commission’s view, the instability induced by the present planning
and budgeting process canbe substantially reduced, andits effects can be made
far less disruptive. As the Commission recommtmded in our Znterim Report,
defense planning should startwith a comprehellsive Presidential statement of
national security objectives and priorities based on recommendations of the
NSC. O n this basis, the President would issue plovisional five-year budget levels
to the Secretary of Defense reflecting competing demands on the federal
budget as well as projections of gross national product and revenues. These
budget levels would be based on recommendations from theNSC with the
advice and assistance of the OMB.
Upon receipt of Presidential planning guidance, the Secretary of Defense
would instruct the Chairmanof the Joint Chiefsof Staff UCS) to prepare a
national military strategy thatbest achieves the llational securityobjectives
within provisional budget levels. T h e Chairmitn would also be instructed to
11

 develop strategy options for each of the provisional budget levels, based on
consideration of major defense policies and operational concepts, to meet the
entire range of threats to these national secrlrity objectives.A recommended
national military strategy and options would he prepared by the Chairman with
the assistance of the other membersof the J C S and the Commanders-in-Chief
(CINCs) of the Unified andSpecified Commands. The military capabilities
provided by this strategy and options would be compared with the present and
projected capabilities of potential opponents111 a military net assessment.
T h e Secretary of Defense would review the Chairman’s recommendations
as described, and make such modificationsas he deems appropriate. Upon
completing that phaseof the new defense planning process, the Secretary, and
the Chairman as the principal military adviser, would present to the President a
recommended national military strategy, strat eg)’ options, and the net
assessment.
After review by the NSC, the President would select his preferred national
military strategy and its corresponding five--year defense budget level, based
upon his national security objectivesand priorities, and an acceptable level of
risk. He would provide this decision to the NSC, the OMB, and the Secretary of
Defense. T h e Presidential decision, including the five-year fiscal guidance,
would be binding on the Executive Branch unless changed
by further
Presidential decision.
Based on the President’s decision, the Secretary
of Defense would develop
a detailed Defense Guidance for theMilitary Departments and Defense
Agencies to launch the Planning, Programming, and Budgeting System (PPBS)
internal to the DoD. T h e final version of the Defense Guidance would contain
the Secretary’s detailed guidance on defense objectives, policy, strategy, force
levels, and fiscal guidance, all based on the Pres‘ident’s decisions. T h e detailed
fiscal guidance would be thebasis for a new Five-Year Defense Program and for
detailed pricing and schedulingof the new defense budget.
T h e Commission strongly believes that all early Presidential decision on a
five-year defense budget level, clearly linked t o a Presidentially approved
national military strategy,is necessary to achievea more orderly and more stable
process for executive and congressional planning and budgeting for defense.
Early Presidential determinationof an appropriate five-year budgetlevel would
better integrate all elements of the Executive Branch in the resource allocation
process, result in more coherent and stable long-range planning for national
defense, and provide the Congress a proposed defense program more readily
explained and justifiedin terms of national security requirements.
Our recommended improvementsin natlonal security planning and
defense budgeting process (outlinedin Appendix E to this Final Report) should

 be commenced immediately to assist the defense plannillg and budgeting
activities now underway in DoD and in Congress to construct the first
biennkal
defense budget. T h e budget to be submittedto Congress in January 1987 for
fiscal years 1988 and 1989 should be the transitional budget for the
new
planning process. T h e new defense planning and budgeting processwould
thereby be fully implemented for the fiscal year 1990-9 1 budget. To achieve
that end, the President should provide the strongest quidance
possible to the
NSC, the OMB, the Secretary of Defense, the Chairnlan of the JCS, and the
Military Departments.

Recommendations
To institutionalize, expand, and linka series of critical Presidential
determinations, we recommend a process (Appendix E ) that would operate in
substance as follows:
The National SecurityCouncil would develop and direct a national
security planning process for the President that revises current national
security decision directivesas appropriate andthat provides to the Secretary
of Defense Presidential guidance that includes:
0

A statement of national security objectives;

0

A statement of priorities among national security objectives;

0

A statement of major defense policies;

0

Provisional five-year defense budget levels, with the advice and
assistance of the Officeof Management and Budget,to give focusto the
development of a fiscally constrained national military strategy.Such
budget levels would reflect competing demands on the federal budget
as well as projections of gross national product andrevenues; and

0

Direction to construct a proposed national military strategy and
strategy options forPresidential decision in time to guide development
of the firstbiennial defense budget for fiscal years 1988 and1989.

Following receipt of the Secretary’s recommended national military
strategy, accompanying options, and a military netassessment, the President,
with the advice of the NSC, would approvea particular national defense
program and its associated budget level. Thisbudget level would then be

13

 provided to the Secretary
of Defense as five-year fiscalguidance for the
development of biennial defense budgets such that:
The five-year defense budget level would be binding on all elements of
the Administration.

14

0

Presidential guidance, as defined above,would be issued in mid-1986
to guide development in this transitional year of the first biennial
defense budget for fiscal years 1988 and 1989 to the
maximum possible
extent.

0

The new national security planning process would be fully implemented to determine the courseof the defense budget for fiscal years
1990 to 1994.

 111. A New Process for Planning National
Military Strategy

T

o provide the President and the Secretary of Dcfense
with military advice

that better integrates the
views of the nation’s combatant commandsand
Military Services, the Commission inour Interim Report recommended legislation
creating new duties for the Chairman of the Joint
Clliefs of Staff (ICs).In the
military adviser
Commission’s view, the Chairman should become thc principal
to the President, the National Security Council,and the Secretary of Defense,
representing his own views as well as the corporateviews of the JCS. T h e
Chairman should be given exclusive direction of theloirlt Staff, and other
elements of the Organization of the Joint Chiefs
of Staff, to perform such duties
as he prescribes to support the JCS and
to respond t o the Secretary of Defense.
To further assist the Chairman in performing his new duties, a new position of
Vice Chairman of the JCS should be created.
We note that in a message to
Congress on April 24, 1986, the President endorsed these recommendations
and that the Senate and House have separately passed legislation along these
lines.
In making these recommendations, the Commission envisioned that, the
new duties of the Chairman would include a majol role in national security
planning. The Commission recommended that the Chairman,
with the advice of
the other members of the JCS and the Commanden-in-Chief (CINCs) of the
to
combatant commands, be given responsibility for prc-paring and submitting
the Secretary of Defense a fiscally constrained national military strategy, with
strategy options, based on the President’s initial guidimce on national security
dbjectives and priorities, and his provisional five-year budget levels. T h e
Chairman would also, with the assistance of the othel. members of the JCS, and
i’ consultation with the Director of Central Intelligellce, prepare a military net
ssessment of the capabilities of United States andAllied Forces as compared to
t ose of potential adversaries. The netassessment wcfuld he usedto evaluate the
isks of the strategy and the strategy options.
On April 1, 1986, the President issued a directivc to the Secretary of
C to this Final Report) calling filr a new processfor
strategy. T h e following sec.tion of this report
the Commission’s views on the new process to aid in implementing

i

15

 Improved Defense Strategy Development
Just as the President’s guidance on national security
objectives and priorities
should provide a clear statement of what we must achieve, military strategy
should provide a clear statement
of how we will achieve it. That strategy must
address how we plan to achieve particular national ends with available, or
reasonably anticipated, military means. Specifically, a strategy must relate
proposed military force levels to available resources.
It is incumbent upon our seniormilitary leaders, as they chart a course for
the nation’s military forces into the next century, to apply financial limits to
military force planningin a way not previously attempted. T h e questions that
such planning entails must be answeredin that light. These include:
0

What kind and what numbersof forces shouldwe field in the future?

0

What kind of equipment should they have?

0

How rapidly should we modernize their equipment?
How, and at what pace, canwe best incorporate the benefits of
technological advances?

0

How much should we spend on readiness and sustainability, on the one
hand, and modernization, on the other?

0

What balance should we strike between strategic nuclear and general
purpose forces?

0

How can we keep the overall cost of building and maintaining military
forces within limits whileachieving performance objectives?

To develop a well-designed nationalmllitary strategy, the Chairman should
first ensure that he has a full range
of views from the Joint Chiefs, who
as
individual Service Chiefsare charged with (leveloping and providing the
nation’s Armed Forces, and from the combatant commanders, who are charged
with employing them. Second, the Chairman should integrate the sometimes
conflicting perspectives arising from the dif.ferent responsibilities heldby these
officers into a coherent military strategy.‘rhis strategy thus would reflect the
best thinking of the nation’s senior military leadership.
The productof such a strategy-deve1ol)ment process would reflect the
fiscal

16

 constraints directed by the President for the planning period and would include:
0

an appraisal of threats to the achievement of'our national
objectives
across the full range of potentialconflict during the five-year planning
period;
a recommended strategy to meet ourobjectives and to respond to these
threats during the planning period; and
the force requirements andcapabilities to support the strategy.

range of decision alternatives for the President,
In order to frame wide
a
the Chairman would be directed to provide the Secretary with strategy options
resulting from the President'sfive-year budget l(.vels and from variationswithin
a given budget level. These would reflect explicir trade-offs among the Services
and among competing requirements from the combatant commands. In
addressing options to the proposed national military strategy, the Chairman
would consider major defensepolicies and operational concepts(e.g.,
modernization, force structure, readiness, sustaillability, security assistance
policy and fundinglevels, strategic nuclear forces versus generalpurpose forces,
etc.).
In order for the Chairmanof the Joint Chiefsof Staff to provide sound
a companion analysis should be
military advice on the various strategy options,
prepared that would identify:
0

adjustments to current forcelevels in accordance with the President's
provisional budget levels and the associattbd costs or savings;

0

problems that may preclude attainment of' needed force levels o r
capabilities without mobilization (e.g., pel sonnel quality or quantity
unattainable without conscription, and the adequacy of the industrial
base to support forcelevels);

0

unique regional considerations that ma) restrict our ability to employ
military force (e.g.,political or otherpotelltial disadvantages to the use of
U.S. forces, maintainability of lines of supply,access to friendly ports of
entry, etc.); and
limits on deployment ormobilization that may restrict our ability to
employ military forces in conflict (e.g., tht. availability oftransport, the
adequacy of the training base, etc.).
17

 Our proposedprocess for strategy development does not diminish the value
in the Joint Strategic Planning Docuof force planning as currently provided
ment (JSPD). T h e JSPD serves as the JCS contribution to the planning phaseof
it could be revised to
DoD’s Planning, Programming, and Budgeting System, but
for strategy and force
provide a more meaningful overarching framework
planning. T h e analytical value of the JSPDlies in its identification of force levels
for global general war that could guide the tlevelopment of relatedpeacetime,
resource-constrained forces. Specifically, the J SPD planning force couldbe
linked to a peacetime mobilization base for a “worst case” contingency of a glob
general war.T h e mobilization base derived from the JSPD planning force could
be developed to achieve the shortestpossible I ime t o expand from mobilization
base levels to planning force levels-consistent with the President’s fiscal
guidance. Such a peacetime posture shouldbta a central consideration i n
developing the recommended national military strategy and strategy options
provided to the President. In addition, forc(’s for support of regional unified
commanders in pursuit of U.S. national security objectivesin peacetime, as well
as the more probable,less intense forms of conflict, shouldalso be identified in
the JSPD mobilization base planning force.

An Improved Net Assessment
As an elementof the planning process wc propose, it would be necessary to
make a more comprehensive effort to assess the capabilities of our forces to
accomplish their missions in the light of projected military threats posed by
potential adversaries. Where appropriate, Allied Forces should be included in
this analysis.
A net assessment ofmilitary capabilities, projectedfive years into the
future, can help identify the risks associated Ivith alternative military strategies
and force postures.It would be of major assislance to the Chairman, the
Secretary of Defense, and the Presidentin framing andselecting a defense
budget level and force posture bettertied t o national security objectives and
priorities. As an adjunct to thenew strategy planning process, the net
assessment could help identify existing emcsrging
or
problems and opportunities
that need to be brought to the attentionof the Secretary of Defense and the
Chairman for further studyin the development of strategy options.
The expanded planningresponsibilities 1 0 be assigned to the Chairmanof
the Joint Chiefsof Staff would require thathct prepare an independent,
to evaluate the recommended
comprehensive military net assessment in order
national military strategy and any strategy options proposed. T h e Commission
18

 has recommended that the Chairman prepareI his assessment for the Secretary
of Defense with the assistance of the other menlbers of the
JCS and in
consultation with the Director of Central Intelligence.He shouldalso draw
upon the advice of the combatant commanders.

Recommendations
The Secretaryof Defense, following receipt of the Presidential guidance
described previously, should direct the Chairman of the Joint Chiefs of Staff
(JCS), with theadvice of the other members of the
Joint Chiefs of Staff and the
Commanders-in-Chief (CINCs)
of the Unified and Specified Commands,
to:
0

Appraise the complete range of military threats to U.S. interests and
objectives worldwide;

0

Derive national military objectives and priorities from the national
security objectives, major defense policies,and priorities received from
the President; and

0

Provide the Secretaryof Defense a recommended national military
strategy that:
Best attains those national securityobjectives provided by the
President, in accordance withhis policiesand priorities;
Identifies theforces and capabilities necessary to execute the
strategy during the five-yearplanning period; and
Meets fiscal and other resource constraints
directed by the
President during the five-yearplanning period.

At the direction of the Secretary of Defense, the Chairman also should
develop strategy options to achieve the national security objectives. Such
strategj options would:
0

Frame explicit trade-offs among the Armed Forces;

0

Reflect major defense policies and different operational concepts, in
terms of different mixes of forces or different degrees of emphasis on
modernization, readiness, or sustainability;

0

Respond to each provisional budgetlevel provided by the President;

19

 0

Explore variations within a particular provisional budget level; and

0

Highlight differences incapability between the recommended national
military strategy, on the one hand, and feasible alternatives, on the
other.

At the direction of the Secretary of Defense, the Chairman of the Joint
Chiefs of Staff, with the assistance of the other members of the JCS and the
CINCs, and in consultation with the Directorof Central Intelligence, should
also prepare a military net assessment that would:
0

Provide comparisons of the capabilities and effectiveness of U.S.
military forces with those of forces of potential adversaries for the
Chairman’s recommended national
military strategy and other strategy
options;

0

Reflect the military contributions of Allied Forces where appropriate;

0

Evaluate the risks of the Chairman’s recommended national military
strategy and any strategyoptions that he develops forthe Secretary of
Defense and the President; and

0

Cover theentire five-year planning period.

The Secretaryof Defense, following hisreview and analysis of the
Chairman’s recommendations, should provide to the President:

20

0

The Secretary’s recommended national military strategy and
its
corresponding five-year defense budget level, consistent with the
President’s policy and fiscalguidance;

0

Appropriate strategyoptions and corresponding five-year defense
budget levels sufficient to provide the President a wide range of
alternatives in choosinga national defense program; and

0

A military net assessment of the recommended national military
strategy and strategyoptions.

 ~~~

~~

~

~

IV. The Congressional Defense Budget
Process-A Need for Change

T

he recommendations discussed above, when implementedby the President
and the Secretaryof Defense, will go a longway toward making defense
planning and budgeting within the Executive Branch more rational and stable.
But this effort will fail to achieve the desired resultsif‘ Congress does not d o its
part to improve its role in the process. Realism in long-range planning and
budgeting for defensewithin the Executive Branch mustbe met by a responsible
exercise of congressional power in budgetreview and oversight.
In defense budgeting,as in most other matters o f ’ national policy, the
President proposes but Congress disposes. T h e national defense program
depends upon steady, long-termvision if it is t o meet our long-term security
needs effectively. Congressional focus, however, is myopic and misdirected.
Only the upcoming budget year gets real attention, and this attention
is directed
at the budget’s microscopic pieces,its line items.
Problems inherent in Congress’ defense budgetreview manifest themselves
in budget resolutions that reflect little or noconsistency from year to year;i n
changes to thousands of line items within the defense budgetthat, taken
together on this kindof scale, verge on randomness; andin defense
appropriations that are invariably late
in enactmelit.
It is true that changingpolitical and economic, circumstances may require
the Congress to adjustits plans from time to time.But the Commission believes
that both the number and the magnitude
of changes resulting from
congressional review of the defense budget are excessive and harmfulto the
long-term defense of the country.
Where national defenseis concerned, today’s congressional authorization
and appropriation processes have become mired i n jurisdictional disputes,
leading to overlapping review of thousands of line items within the defense
budget. A growing rivalry between the Armed Services Committees and the
Defense Appropriations Subcommittees over the line-item makeup of the
defense budget has played a major role
in moving congressional review of the
defense budget toward narrowly focused financial action on individual items
and away from oversight based on operational collcepts and military
effectiveness. During the review of the 1985 defellse budget, for example,
Congress made changes to over1,800 separate defense programs and directed
feasibility of sellinglamb
DoD to conduct458 studies ranging from the

21

 products in commissaries to the status
of retirement benefits for Philippine
scouts.
This kind of tinkering and financial fine-tuning has heightened defense
program instability because ofits wide reach and lack of broader operational
focus. Congressional action on the 1985 budget reduced the President's request
$0.5 billion (or 2 percent) involved
by $20.5 billion, but, of that amount, only
outright program cancellations or procurement terminations. The other 98
I O procurement rates and mixes,
percent of the reduction came from changes
level-of-effort cuts, miscellaneous personnelt rims, and financing adjustments.
In addition,DoD now finds itself involvecl i n a new congressional budgeting
phenomenon in which the Appropriations Committees have funded programs
that the ArmedServices Committees have not authorized. In fiscal year 1986,
the DoD Appropriation Act included over 150 line items, valued at $5.7 billion,
that were authorized at a lowerlevel o r were not authorized at all. As of this
date, thefiscal year is more than half over but DoD cannot obligate funds nor
$6 t)illion of programs while the
conclude contract negotiations for almost
disagreement continues between congressiond committees.
Under these circumstances, the Secretar)of Defense and the Military
Departments find themselves in the position of making final decisions in
formulating a budget for the nextfiscal year while Congress is still debating its
own wide-ranging differences on the budget fbr the ongoing
fiscal year. When
Congress finally makes its appropriation decision, the Secretary and the
Services
are forced to adjust the proposed budget for the upcoming
fiscal year, latein the
budget-formulation process within the Executive Branch,in order to
incorporate the impactof congressional changes. T h e timing and scope of these
changes prevent theDoD from making coherent linkages among the three
defense budgets thatit manages at any one ti~ne-the budget being executed,
the budget underreview by Congress, and thtx h d g e t that DoD is developing
for the upcomingfiscal year.
Meanwhile, defense managers and defense procurement personnel around
the world must implement late congressional decisions after thefiscal year has
started. They are confronted
with numerous changes that alter and delay their
program plans, schedules, and contract decisions. J'his
instability, in turn,
spreads outward to the defense industry, wllose investment and production
plans must be hastily adjusted annuallyas a rclsult of late congressional
appropriations.
Finally, instability indefense budget planning has been further exacerbated
as a result of thenew Gramm-Rudman-Hollirlgs legislation. In March 1986, the
sixth month of thefiscal year, DoD was forced to take a4.9 percent reduction in
each of almost4,000 programs, projects, and dctivities, for atotal cut of$13.6

22

 billion in budget authority and$5.2 billion in outlays. These across-the-board,
automatic cuts allowed n o analysis o r managemc’nt judgment to be exercised
The
about priorities or about their effect on defense programs and forces.
essence of budgeting is setting priorities. Our recommendations depend upon
a
rational choice of priorities by responsible defensct managers, as opposedto a
mechanistic allocation of resources acrossall activities. We must assume that
government will remain a place ofjudgment.
Many of the problems described above affectlng congressional action result
from major differences of opinionwithin Congress o n the funds to be provided
for defense in any one year. However, as this debate continues from year to
year, congressional budget resolutions show very little consistency regarding
a result, their projections of defense budgetsfor
national defense funds, and, as
future years have become unreliable measuresof c.ongressiona1 intent.
Shortly after congressional budget resolution projections are made, the
budget-formulation process begins in the Executive Branch to build budgets for
the years covered by such projections. As the last guideposts of congressional
intent before Executive Branch budget formulation, budget resolution
projections play a central role in decisions on thelevels for defense that are used
for planning within DoD and that the Presidentultimately will propose to
1.eflected unrealistic levels for
Congress. To the extent, then, that Congress has
future defense budgets in its budget resolutions, lack of‘realism will also affect
the President’s budget. This document toa large degree each year mirrors the
congressional budget resolution of the previousy c x . That is why congressional
budget resolution projections should be made with great care, with full
commitment to those projections from key Committees that review the defense
budget.
The Commission urges the leaders of Congress
to develop ways to relate
projections in budget resolutions to the five-year ljudget levels developed within
the Executive Branch (as described in the previoussections of this report) for
provision, in turn, to Congress. We believe that a ~nuch-improved linkage
between the new proposed process for defense planning and budgeting within
the Executive Branch, and the current budget resolution process
within
Congress, is central to responsible decision-making on matters of national
security.
Another concern is the role budget resolutiorls play in later phases of the
overall congressional process. T h e practice has Ileen for the authorizing and
appropriations committees to treat Budget Committee targets as
ceilings from
which they could depart, rather thanas congressional commitments. T h e
steadiness that should mark long-term planningfor- the nation’s defense has
suffered as a result.

23

 T h e Commission is also concerned about t€lelack of cooperation in review
of the defense budget that marks authorization and appropriation actions today
in Congress.
The Armed Services Committees need to become less concerned with
attempting to control line items through authorization action and need to
concentrate more on thetask for which they are best suited, allocationof funds
between and within major operationalcategoric s of‘the defense budget. In the
Commission’s view, the Armed Services Committees also should have an
important role toplay in ensuring that new weapon programs in fact contribute
to military effectiveness within major operational categories.They should be
the primary congressional agents for approvalo f acquisition programs entering
full-scale development and high-rate productiorl as recommended by the
Commission in its report on Defense Acquzsitzon and described laterin this
Chapter.
The Armed Services Committees cannot, however, simply take on such
roles unilaterally. T h e leadership of the authorizing and appropriations bodies
on a division of labor that lessens
that deal with the defense budget must agree
considerably the overlap and consequent rivalr) that marks the process today.
We agree completely with the observations made by the Senate ArmedServices
Committee, in an April 1986 report, on the nc.ed for congressional reform in
providing for the nation’s defense:
Congressional reform must extendbeyond the confines of defense oversight.
Ultimately, fundamental patterns of congressional behavior mustchange.
Committeejurisdictions must be reasserted and tightened to minimize overlap
and duplication. Redundant legislative phases o f budgeting, authorizing, and
appropriating must be consolidated.

Procedural Reforms
If leadership problems within Congresscan be overcome, andstability of
the defense budget and a more appropriate
division of labor among committees
can be achieved, procedural reforms can have further beneficial effect. The
most important reform, in the Commission’s view, is adoption by Congress of
biennial defense budgets tied to a five-year plan.

24

 A. Biennial Budgeting andFive-Year Planning for
Defense
In our Interim Report, we recommended thal the President submit to
Congress a two-year defense budget and the
five-year plan on which it is based.
Congress would be asked to approve a two-year Imdget based upon
this plan. I t
would do so through a two-year authorization atld appropriation for national
defense. We note that the 1986 Defense AuthorrzationAct calls for the
submission to Congress by the President of a two-year defense budget for
fiscal
years 1988 and 1989 in early 1987. DoD is now preparing such a budget. We
applaud this initiative by the House and Senate ArmedServices Committees,
and we believe that, if Congress decides to adoptthis new method of budgeting,
it can lead to the two-year defense authorization and appropriation that we
have recommended. We are mindful, however, that for some years the
President has, at congressional direction, provided requests for two-year
defense authorizations, but only the first year
o l each of these requests has ever
been acted upon.
The Commission believes that a biennial budget process for defense, tied to
a five-year defense plan, would promote stabilitv by providing additional time
to do a betterjob-to think through military planning options, to evaluate
results of current and prior-year execution
of the defense budget, andto ensure
that each phase of thecycle has the attention needed.A two-year cycle also
would, in particular, allow DoD to pay more attention to programming, the
second phase of the Planning, Programming, and Budgeting System (PPBS)
where individual defense programs are put together, refined, and compared to
each other to respond to defense needs.
A new biennial defense programming process would need be
to fashioned
to precede the process throughwhich biennial tmdgets are formulated. Stability
obtained from such two-year processes would provide many benefits
throughout DoD not the least
of which would be found at the operationallevel
in the field, where installation andactivity commanders and program managers
turn budget decisions into action.
A two-year defense budgetcycle could also allow the Executive and
Legislative Branches of government to spend oneof the two years on a
necessary, but generally ignored, evaluation process.It should help the Services
to better manage their programs, and Congrcss t o stick to its deadlines and
schedules. Having spent a year reviewing ongoing activities, Congress should be
able to begin earlier andmove faster in the appropriation year.
One of the major arguments against biennial budgetingis that it builds too
much inflexibility into the system. National security objectives and priorities,
-~

25

 however, ordinarily do not change appreciably from year to year, nor should
military strategy or the military force structure change radically over a two-year
period. In addition, the appropriate
tools needed to make any changes
required in the second year of budget executioll are already
in existence.
Current reprogramming, supplemental, and I)udget amendment procedures
are more than adequate to address the need. Rc.programming thresholds and
transfer limitations within program categories shouldbe reviewed by both
Congress andDoD in a biennial budget context, and additional
flexibility should
be provided if needed. Rescissions and deferrals are also techniques that can be
used when necessary.
Primarily, however, a two-year appropriation for defense would stop the
yearlong chaos of budget-making that we now have, or at minimum,allow it to
happen only every two years rather than annually. This would surely provide a
greater degree of stability over a longer period of time.
We applaud DoD support fortwo-year defense budgets and growing
support within the Congress.We are particularly encouraged by Secretary
Weinberger’s commitment to the concept. He e(:hoed the Commission’s
sentiments in his letter transmitting the April 1 , 1986, Report on Two-Year
Defense Budgeting to the Armed Services Committees and Appropriations
Committees when he stated:
. . . The resulting improved stability could tncrease the efficiency o f defense
operations. Such an approachcould also ser\.e t o simplify the currently lengthy
and time consuming budget process. Both Congress and the Executive Branch
would have significantly more time to focus on the resolution of policy issues
and theestablishment of priorities. Moreover, the adoption of biennial
budgeting should reduce theneed for Congress t o fund our(defense)
operations through limited and ineffective (hntinuing Resolution Authority
procedures. . . .

B. Milestone Authorization, Baselining, andMulti-Year
Procurement
To complement biennial budgeting, the Cornmission
believes that milestone
authorization, baselining, and multi-year procurement should be instituted and
expanded by both DoD and Congress forall major defense programs.
Milestone authorization would allow the i\rnled Services Committees to
focus their review of major acquisition programson two key program
milestones, the beginningof full-scale engineering development and the startof

26

 high-rate production. Programs advancing throughthese milestones in either
the first or second year of a particular biennial authorization request wouldbe
identified to Congress by DoD, which would provide a program baseline for
each identified program. A program baseline would describe the cost, schedule,
and operational performance of thesystems to be acquired during the
certified at the highestlevel of
production lifetime of the program, would be
responsible officials within DoD, and would establish a contract between the
Executive and Legislative Branches based on mutual expectations for the
program.
If such a process were in place, the Armed Services Committees would not
need to subject defense programs performingwell, relative to an approved
baseline previously established at key
a milestone, to1 he samelevel of scrutiny as
programs arriving at key milestones. In fact, to the nlaximumpossible extent,
programs that proceed successfully through congressional authorization at the
high-rate production milestone should be executed through multi-year
procurement. Once multi-year procurement is initiated, changes to a program
baseline, either through DoD action or through later congressional
authorization or appropriation action, should
be avoided because ofthe
financial penalties involved. In the Commission’s view, milestone authorization,
baselining, and multi-year procurement would promote the kind of stability
and proven cost savings inbudgeting for national defense that are central
objectives of our recommendations.

C. Changing the Structureof the Defense Budget
Finally, the Commission believes that the Congrc.ss, DoD, and the Office of
Management and Budget must togetherbegin the hard work necessary to
reduce an overly detailed line-item review of thedeftme budget and to bring a
broader, operational perspective to the defense budget andits companion FiveYear Defense Program.
The Five-Year Defense Program has been constructed to provide a
crosswalk between the input (financial) side of the nation’s defense budget and
the output (forces, weaponsystems, manpower, etc.)d e where defense
programs are grouped according to the operational ~~urposes
they serve.
However, the relative lack of attention historically ditected at operational
concepts to guide defense spending has resulted inrelatively poor structural
development of the outputside. While the basic foundation of an operationally
oriented structure has beenin place in the Five-Year Ilefense Program for some
time, much more work must be done to build a new, and more adequate,
budget structure for congressional biennial defense authorizations and
appropriations.
27

 For example, such anew budget structure might better show the
contribution of theB-1 bomber to national defenseby grouping the B-1
program and other appropriate programs
within a budget account titled
“Modernization of Strategic NuclearForces” rat her than, as is now the case, a
budget account called “Aircraft Procurement, Air Force.” A revised budget
structure of this type would allow a better review of the different types of
strategic nuclear systems,in relationship to eacll other and to overall national
security objectives, than is now the case.
In addition,it would allow for more management judgmentto be
introduced by aggregating, consolidating, and reorganizing thousands of line
items into fewer budgetactivities within the Military Departments. For example,
if all Army cargo andutility helicopters and their modifications, spares, and
simulators were placedin a new, single, aggregilted activity, 39 line items could
be reduced to 4. Similarly, 358 line items for trucks couldbe reduced to 1 1. This
would permit more reasoned,practical, and balanced decisions to be made.

Recommendations
CONGRESS
A joint effort among the Appropriations Committees, the Armed
Services
Committees, the Officeof Management and Budget (OMB), and the
Department of Defense (DoD) should be undertaken as soon as possibleto
work out the necessary agreements, concepts, categories, and procedures to
implement a new biennial budget process for defense. Biennial budgeting for
defense should be instituted in 1987 for the fiscal year 1988-89 defense
budget. Congressshould authorize and appropriatedefense fundingfor those
two years. The second year of this new biennial budgeting process should be
used by both Congress and DoD to review program execution where
appropriate.
Congress should reduce the overlap, duplication, and redundancy among
the many congressional committees and subcommittees now reviewing the
defense budget.
The leadership of both parties in the House and the Senateshould review
the congressional process leading up to annual budget resolutions with the
intent of increasing stability in forecasts for defense budgets for future years.
We cannot stress strongly enough that a responsible partnership in providing

28

 for the nationaldefense means agreement between
Congress and thePresident
on an overall level of afive-year defense program earlyin anew President’s
term in office and adherenceto this agreement during his Administration.
The chairmen and ranking minority members
of the Armed Services
Committees and theDefense Appropriations Subcommitteesshould agree on
a cooperative review of thedefense budget that has the following features:
Review by the Armed Services Committees of the defense budget in
terms of operationalconcepts and categories (e.g., forcestructure,
modernization, readiness, and sustainability, etc.);
Review and authorizationof individual programs by the Armed
Services Committees that concentrate on new defense efforts at key
milestones-specifically the beginning of full-scale developmentand
the start of high-rate production-in terms of their contributions to
major defense missions;and
Review by the Appropriations Committees,using the new budget
structured in terms of operational concepts and categories, to adjust the
the President’sdefense budget tocongressional budget resolution
levels through refinementsbased on information not available when
the President’s budgetwas formulated monthsearlier.
Congress should adhere toits own deadlines by accelerating the budget
review process, so that final authorizations and appropriations are
provided to
DoD on time, and less use ismade of continuing resolutions.
Congress should review and make major reductions in the number of
reports it asks DoD to prepare and should closely control requirements for
new reports in the future.

EXECUTIVE BRANCH
The President should direct the Secretaryof Defense and OMB to
institute biennial budgeting for defense in1987 for the fiscal year 1988-89
defense budget and budgets thereafter.
The Secretaryof Defense should developand submit to Congress defense
budgets and five-year plans withinan operationally oriented structure.He
should work with the appropriate committees of Congress and withOMB to
1

9
29

 establish the necessary mechanisms and proceduresto ensure that a new
budget formatis established.
The Secretary of Defense should institute a biennial programming
process within DoD to complement the proposed biennial planning and
budgeting processes.
The Secretary of Defense should work with the ArmedServices
Committees to define proceduresfor milestone authorization of major defense
programs.
Baselining and multi-year procurement should be used as much as
possible to reinforce milestone authorization.

30

 V. Conclusion

D

efense of the nation demands that better
links be forged among national
security objectives, national military strategy, and defense budgets.
The President must initiate the effort. He must challenge the Secretaryof
Defense, the Chairman of the Joint Chiefs
of Staff, and the nation’skey military
leaders to create a national military strategy that
can become the basis of
America’s protection into the next century. Only the President can define the
terms and boundaries necessaryto set such a broaci gauge effort in motion, and
he must be confident thatit will yield the proper result.
Prepared with this kind of a national military strategy, the President can
provide Congress a blueprint for national security. and a constructive
it out-through a five-year national defense
partnership can be formed to carry
program that logically follows. This partnership will, however, require
Congress to improveits methods and make them more responsive to the
requirements of national defense.
In the end,all responsible senior officials must exercise leadershipif better
methods are to take hold andyield a better national defense.We must depend
upon dedicated and talented people to take the concepts
we have presented and
build upon them for the future.

31

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Chapter Two

Military Organization
and Command

THIS PAGE IN TEN TIONALLY LEFT BLANK

T

o accomplish meaningful, long-range deftnse planning, certain modifications are neededin our defense establishment.*

'The President and the Secretary o f ' Def'ense require military advice that
[letter itltegrates the individual views of the nation's combatant commanders
and the Chiefs o f t h e Services. 'Today, there is n o one uniformed officer clearly
responsible for providing such an integrated view, who can draw upon the best
t h i l l k i ~ l gof, and act as an effective spokesman for, our senior military leadership. The current authority of the Chairman o l ' the Joint Chiefs of Staff' is i n sufficient to enable him t o perform effectively i l l this capacity. T h e Chairman's
advisory relation to the President and the Secretar),o f ' Defense, the Chairman's
mandate over the Joint Staff and the Organization of the Joint Chief's of Staf'f,
and the Chairman's place in the channel of conlrnunications between the Secretary o f Defense and the (:ommanders-in-C:hief o f ' the Unified and Specif'ied
(hmmands (CINCs), all must be strengthened l o this end.
So, t o o , must the views of the C I N C s be 111orestrongly and purposefully
represented than they are at present within the c-oullcils o f the Joint Chiefs and
i n weapons requirements decision-making. 1Zec ; I U S ~ i t is the responsihility o f '
the Chairman to integrate the sometimes corlflicti~lg advice o f t h e Service
(3iefs and the C I N C s into a national strateg),. the necessity f o r impartiality
anti objectivity in doing s o argues for another \ o i w i n the Joint Chiefs o f ' Staff
t o represent the views of' the C I N C s . For thesc. purposes, and t o assist the
(:hairman in his existing and additional I-es~~ollsil)ilities,we conclude that the
position o f ' Vice C:hairman o f the J o i n t (:hief's o f ' Staff' should be established.
u iadvice
ty
t o the k c : There isa11 important need t o provide f o r - c o ~ ~ t i ~ ~of'
retary of Defense and the President i n the at)sulc.c o f ' the Chairman o f ' the
Joint Chiefs of Staff. The current system, i n 11 h i c h the rnernbers o f ' the Joint
Chiefs of Staff' (J<:S) rotate quarterly as Acting ( ; l l a i r n w l , has provided continuity better than earlier systems. I t also has served to e11hance a needed joint
perspective among the Service Chiefs and i r m cxse their effectiveness i n both
o f ' ;I Vice (:hairman as a Inerntheir JCS and Service roles. 'I'he establishnlent
ber of the Joint Chiefs o f Staff having special I.esponsiibilities for representing
the interesis of the CINCs and reviewing weal)ons requirements would be an
important innovation. While underscoring the importance o f continuity, the
*With certain important additions, this Chapter represents relevant findings and
recommendations presented earlier in our Interim Report.

 Commission believes the procedures under cvhrc.11 a n Acting (:hairman is clesignated should remain flexible. Under the Presiclerlt’s direction, the Secretarv of
Defense should be permitted t o adopt those p1.ocedures which are best suited
to the particular circumstances and torevise t h t m i n accordance with changing
needs.
T h e Commission believes that the present authority of the Chairman of‘the
of the personnel assignedby the
Joint Chiefs of Staff to influence the quality
Armed Services to the Joint Staffis adequate to assure proper support for him,
and for the Joint Chiefs of Staff.
We note thal the JCS corporately control all
military personnel, and therefore are in thebest position to provide the Chairman with the best possible staff. We d o not believe that Congress can usefully
legislate new rules for selecting and promoting Joint Staff officers.
We find that improvements also are neeclcd i n the several Unified (i.e.,
multi-Service) and Specified (i.e., single Scv-vit (:onlnlancis into which our
combat filrces are organized.
T h e measure o f ’ command now accorded the. nation’s combatant c o ~ n manders is not always sufficient for our forces t o perf‘orrn with high confidence
of success and coherence of‘ effort. Unified (:onlmanders require broader authority than “operational command,” 21s now r~nderstoocl andpr;lcticed, i n order to meet the heavy responsililities that t h c i r - Inissiorls p l x e o n them.
In ourInterim Report, we expressed the conviction that, were combatant
commanders authorized and directedto do so, 1 hey could reduce significantly
to them and their components, well
as
the numbers of headquarters subordinate
as the numbers of personnel assigned to staff duties
in these headquarters. We
remain convinced that increased authority foreach CINC should enable himso
to rationalize his command structure. We therefbre urge that the Secretary of
Defense elicit, through the JCS,specific recommendations to that end.
T h e LJnified (:omrnand Plan divides I-esf~onsit>ilitiesamong combatant
commanders too arbitrarily o n the basis o f ‘ geographical boundaries. Today,
some threats overlap those boundaries and nltlst 1)c. dexlt w i t h functionally.
Moreover, the current command structul t ‘ rcflects comrnand arrangements that e\vlved during World b‘ar I I 1 0 t l c a l with high-intensitv corlflict
across vast regions of the globe. However
well t h c . layers o f the present command structure suit the contingency of g e n e ~ d ~ v at rh,e y are n o t altvavs wellsuited to the regional crises, tensions, and
collflic.ts that are comnlonpl;~c.e
today.
Finally, loose coordination of strategic lifi o f ‘ rllilitary forces throughout
the w o ~ - I dnow constrains military effkctivewss ‘Illere are cternonstratecl nlar~asea transportagerial shortfalls i n our ability t o allocate :~\~ailal)le ;iir3 land, and
t i o n among n ~ m claimants.
y
c b )

 T h e specific changes recommended by the Commission arenecessary to assure unified action by our Armed Forces. On April 24, 1986, in a Special Mes, President endorsed
sage to Congress (see Appendix D tothis Fino1 R ~ p o r t )the
our recommendations on military organization and command and requested
early enactment of legislation required to implement them.As the culmination
of a major legislative effort begun in the H o u s e of Representatives in 1982 and
joined in the Senateby passage of the Barry (;oldwater Departmentof Defense
Reorganization Act of 1986, we anticipate enactment ofour basic recommendations by the endof 1986.

Recommendations
The Commission recommends the following reforms in federal law and
DoD practices.
Current law should be changed to designate the Chairman of the Joint
Chiefs of Staff (JCS)as the principal uniformed military advisor to the President, the National Security Council, and the Secretary of Defense, representing his own views as well as the corporate views of the JCS.
Current law should be changed to place the Joint Staff and the Organization of the Joint Chiefs of Staff under the exclusive direction of the Chairman, to perform such duties as he prescribes to support the JCS and to respond to the Secretary of Defense. The statutory limit on the number of
officers on the Joint Staff should be removed to permit the Chairman a staff
sufficient to discharge his responsibilities.
The Secretaryof Defense should direct that the commands to and reports
by the Commanders-in-Chief of the Unified and Specified Commands
(CINCs) should be channeled through the Chairman so that the Chairman
may better incorporate the views of senior combatant commanders in his advice to the Secretary.
The Service Chiefs should serve as members of the JCS. The position of
a four-star Vice Chairman should be established by law as a sixth member of
the JCS. The Vice Chairman should assist rhe Chairman by representing the
interests of the CINCs, co-chairing the Joint Requirements and Management
Board, andperforming such other duties asthe Chairman mayprescribe.
The Secretary of Defense, subject to the direction of the President,
should determine the procedures under which an Acting Chairman is designated to serve in the absence of the Chairman of the JCS. Such procedures

 should remain flexible and responsive to changing circumstances.
Subject to the review and approval of the Secretary of Defense, Unified
Commanders should be given broader authority to structure subordinate
commands, joint task forces, and support activities in a way that best supports their missions and results in a significant reduction in the size and
numbers of military headquarters.
The Unified Command Plan should be revised to assure increased flexibility to deal with situations that overlap the geographic boundaries of the
current combatant commands and with changing world conditions.
For contingencies short of general war, the Secretary of Defense, with
the advice of the Chairman and the JCS, should have the flexibility to establish the shortest possible chains of command for each force deployed, consistent with proper supervision and support. ‘This wouldhelp the CINCs and
the JCS perform better in situations ranging from peace to crisis to general
war.

The Secretary of Defense should establish a single unified command to
integrate global air, land, and sea transportation, and should have flexibility
to structure this organization as he sees fit. Legislation prohibiting such a
command should be repealed.

38

 Chapter Three

Acquisition
Organization
and Procedures

THIS PAGE IN TEN TIONALLY LEFT BLANK

1. Introduction

T

he President established the BlueRibbon (:ommission on Defense
Management in part because public confidencein the effectiveness of the
defense acquisition system has been shakenby 24 spate of “horrorstories”overpriced spare parts, test deficiencies, and
cost and schedule overruns.
Unwelcome at any time, such stories are particularly unsettling when the
Administration and Congress are seeking ways t o deal with record budget
deficits. A major task of this Commission has beent o evaluate the defense
acquisition system, todetermine how it might bcs improved, and to recommend
changes that can lead to the acquisition
of military equipment with equal or
greater performance but atlower cost and with less delay. For this purpose, the
Commission formed an Acquisition Task Force.‘@
We analyzed the horror stories, as others have done, but concluded that a
diagnosis based on recognized deficiencies could lead only to band-aid
treatments for asystem more fundamentally ill. Therefore, ourbasic
methodology has been deliberately quite different.
We compared the defense acquisitionsystem with other systems, both
government and commercial, that develop and produce equipmentof
comparable complexity, in order to find success stories that could provide a
model on which reforms of the defense acquisitionsystem could be based.
Defense acquisition represents the largest and,in our judgment, themost
important business enterprisein the world. It deserves to be managed
with the
by
highest standards. We therefore conducted a “se;uch for excellence”
examining organizations that had been most successful in acquisition, in order
to find a model of excellence for defense acquisition.
Chances for meaningful improvementwill come not from more regulation
but only with major institutional change. During the last decade orso a new
theory of management has evolved. It has been developed by a limited number
of U.S. companies, and it has flourished in Japan. These new management
*The findings and recommendations
of this Chapter aresubstantially those presented
earlier inA Formula for Action: A Report to the President on Delknse Acyutiition, submitted April 7 ,
1986. Additional recommendations, first presented here,rt:late to rights in technical data and
industrial mobilization.
T h e work of‘the Acquisition Task Forcewas directed by William J. Perry. In addition to
David Packard, its members included Louis W. Cabot, Cha1les.J. Pilliod,Jr.,K. James Woolsey,
and the late Ernest C. Arbuckle.

41

 practices have resulted in much higher productlvityand much higher qualityin
the products being produced. Theyinvolve the participation ofall of the people
in the organization in deciding among themselveshow the job can
best be done.
They involve, above all,trust in people. They involve the belief that people in
an organization want to do a good job, andthey
thatwill-if given the
opportunity-all contribute their knowledge, skill, and enthusiasmto work
together to achieve the aims andgoals of their organization. Supervision can be
minimized, and detailedreview of work can be greatlyreduced. A real sense of
teamwork can be established. Every group in an organization can become a
center of excellence, andin this way the entire organizationachieves a level o f
excellence in every aspect ofits work.
Centers of excellence haveevolved here ancl there in the acquisition
process, in the form of project teams that
havt. developed and produced new
weapons rapidly, efficiently, andwith high quality performance. Unfortunately,
this is not the way DoD typically operates. All too many people in DoD work in
an environment of far too manylaws, regulatlons, and detailed instructions
about how to do theirwork. Far too many inspec.torsand auditors check their
work, and thereis a hierarchy of oversight inCar too many layers, requiring
much wasteful reporting and paperwork.
T h e quest for excellencein defense managc’ment will be successful only if a
o l d . Instead of concentrating on
new management philosophy can replace the
the things that are being done wrong and tryingfixtothem with more laws,
more regulations, and more inspectors,
DoD should concentrate on those things
that are done right and use them
as models.
Common sense mustbe made to prevailalike in the enactments of Congress
and the operationsof the Department.We must give acquisition personnel more
authority to do theirjobs.We must make it possible for people to do the right
thing the first time and allow them to use their- common sense. When this is
done, layers of supervision can be eliminated,
rtbporting can be minimized, and
DoD can get by with far fewer people. Only then
will productivity and quality
become hallmarks of defense acquisition.

42

 11. The Scope
of the Defense Acquisition
System

D

efense acquisition is the largest business enterprise in the world. Annual
purchases by the Department of Defense (1)ol)) total almost $1 70
billion-more than the combined purchases of (;enera1 Motors, EXXON, and
IBM. DoD’s research and development (R8cD) ex1)enciitures are more than
fifteen times those of France, Germany, or the IJnited Kingdom, and eighty
times those of Japan. Defense acquisition involves almost 15 million separate
contract actions per year-or an averageof 56,000 contract actions every
working day.
DoD makes only a small percentage of its equipment. It depends primarily
S
and to
on the nation’s industrial companies to develop I ~ weapons
manufacture everything from belt buckles to aircraft carriers. In general, these
companies do not work solely on defense contracts. Most of the top 50 defense
contractors also engage in substantial commercial production. Boeing, for
example, supplies aircraft both
to DoD and to commercial airlines. IBM
supplies computers for military and commercial ‘ipplications. In this way, the
technological base developed for commercial products can
be effectively
applied to nlilitary products, and vice versa. O n 1 he other hand, this dual
commercial-military product base greatly complic;ltes DoD’s task of regulating
and auditing the technical and financial perform‘tnce of industry.
DoD employs more than 165,000 people, both
civilian and military, to
manage this vast array of R&D, procurement, anti logistics programs. Nearly
all of’ these people work for the Services, which direc-tly manage these
programs subject to the oversight of a relatively snlall staff in the Office of the
Secretary of Defense (OSD). Further oversight is provided by the Executive
Office of the President, including the Office of Management and Budget,
particularly in connection with the President’s defense budget. And the
Congress, in exercising its constitutional responsibilitv to provide for our
Armed Forces, authorizes and appropriates funds fbr each of more than 2,600
specified procurement and K&D line items, and plays a major role in
overseeing acquisition programs.
defense acquisition system must
A responsible analysis of problems in the
take into account the complexity and scope of acquisition programs. A
I he actions o f everyone
responsible prescription for change must address
who-for better or worse-can influence these programs, from defense
contractors and program managers to OSDofficials and Members of Congress.
43

 111. Problems With the Present Acquisition
System

AI

of o u r analysis leads us unequivocally t o the conclusion that the defense
acquisition system has basic problems that must be corrected. These
problems are deeply entrenched and have developed over several decades
from an increasingly bureaucratic and overregulated process. As a result, all
too many of o u r weapon systems cost too much, take too long to develop, and,
by the time they are fielded, incorporate obsolete technology.
Recent public attention has focused on
cases of spare parts overpricing
that have been prominently reported by the media. Many of these cases were
uncovered by DoD itself, which has a major tbffort underway to detect spare
parts overpricing and to minimize such probletns in the future. By contrast, w e
have focused on the acquisition of major weapon systems, because improved
efficiency there can lead to cost savings greater by orders of magnitude. We
nonetheless also analyzed the spare parts cases t o determine whether they are
indicative of systemic problems and, if so, how these should be addressed.
Although each of the cases we examined had its own peculiarities, we
identified a number of problems that freque~ltly recurred: for example,
government insistence on rigid custom specifications for products, despite the
commercial availability of adequate alternative items costing much less; the
ordering of spare parts so late in a program, after the close of the production
line, that they must be expensively hand tooled; the use of unsuitable
cost
allocation procedures that grossly distort the price tags of inexpensive spare
parts; the buying of spare parts in uneconomically
small quantities and hence
at higher prices; and the simple exercise of poor judgment
by acquisition
personnel.
In general, w e discovered, these problems were seldom the result of fraud
or dishonesty. Rather they were symptomatic of other underlying problems
that affect the entire acquisition system. Ironically, actions being prescribed in
law and regulation to correct spare parts procurement tend to exacerbate these
underlying problems by making acquisition procedures even more inflexible
and by removing whatever motivation exists tor the exercise of individual
judgment. This Chapter
will concentrate onways of improving theefficiency of
the overall acquisition system. Removing burtbaucratic inefficiencies
in o u r
acquisition of major weapon systems also will realize significant improvements
in our procurement of associated spare parts.

44

 Problems with the present defense acquisition system begin with
the
establishment of approved “military requirements” for a new weapon, a step
that occurs before development starts. T w o common methods exist for
establishing the need for a new system-“user- pull” and “technology push.”
Both methods are unsatisfactory.
User pull defines the institutional process by which users (notably the
Services) assess the adequacy of existing weapons to meet military needs, and
state the characteristics of the next generatioil o f ’ equipment desired to
overcome identified inadequacies. In general, this process does not adequately
involve participants with a sophisticated knowledge of the cost and schedule
implications of technical improvements requircd t o satisfy these characteristics.
Consequently, user pull often leads to goldplating-that
is, the inclusion of‘
features that are desirable but whose cost far exceeds their real value. If users
understood the likely impact of their requirerrlents on the schedule, quantity,
and maintainability of the weapons they eventually received, they would have
strong motivation for compromise. Generally, however, that
compromise-a
conscious trade-off between performance and cost-does not take place to an
adequate degree. Implicitly, it is assumed that military requirements should be
“pure,” and that any necessary trade-offs will take place later in the process.
Alternatively, requirements often are established by technology push. A
government or industry team conceives of a new or advanced technology. It
t o state requirements that will exploit the new
then tries to persuade users
technology. Most of the really significant imp~uvementsin military
technology-radar, jet engines, and the atomic. bomb, for example-have
occurred by technology push rather than by an abstract statement of
requirements. Because participants in this process tend to push technology for
its own sake, however, this method is no less prone to result in goldplating than
user pull.
Once military requirements are defined, the next step is to assemble a
small team whose job is to define a weapon system to meet these requirements,
and “market” the system within the government, in order t o get funding
authorized for its development. Such marketing takes place in a highly
competitive environment, which is desirable because we want only the best
ideas to survive and be funded. I t is quite clea?, however, that this competitive
environment for program approval does n o t encourage realistic estimates of
cost and schedule. So, all too often, when a program finally receives budget
approval, it embodies not only overstated requirements but also understated
costs.
Funding having been approved, the DoD program team is then enlarged
and given the task of preparing detailed specitlcations. Weapon
system

45

 specifications for a major program typically rlln t o thousands of pages, not
counting generic military specifications included I)v reference. System
specifications effectively become a surrogate for overstated military
requirements, which tend to fade from view.
DoD then invites industry to bid on the program. The overly detailed
system specifications serve as a basis for defense contractors to prepare
competitive proposals describing how they would meet the specifications, and
at what cost to them and price to the government. The preparation of
competitive proposals may very well expose twhrlical problems with the
specifications, or reveal modifications that wol1ld be cost effective. T h e
environment in which program competition t! pically takes place, however,
encourages improvements within specifications. but discourages modifications
that deviate from specifications. This effectivelv forecloses one principal
factor-trade-offs between
performance and ( ost-on which the competition
should be based. T h e resulting competition, t).tsect instead principally o n cost,
all too often goes to the contractor whose bid is the most optimistic.
In underbidding, contractors assume there will be an opportunity later in
a program to negotiate performance trade-offs that make a low bid achievable,
or to recover understated costs through engineer-ing change orders. Today,
however, most production and many developnlent contracts are negotiated o n
a firm, fixed-price basis. For the government, the advantages of a fixed-price
arrangement, particularly the incentives it cre,ltes for realistic bidding, are
obvious. T h e disadvantages to the government, while more subtle, are
nevertheless of real concern. Fixed-price conti-acts effectively can enshrine
overstated requirements and understated cost5 i n a legal arrangement that
allows little or no flexibility for needed trade-offs between cost and
performance. This contractual arrangement, illtended to protect the
government, may cause both sides to lose.
In the face of these daunting problems, I h I ) selects a successful bidder
and launches the program. The DoD program manager sets out to accomplish
the improbable task of managing his overspecitled and underfunded program
to a successful conclusion.
But what was merely improbable soon becmmes impossible. The program
manager finds that, far from being the manager of the program, he is merely
one of the participants who can influence it. A n army of advocates for special
interests descends on the program to ensure 1 hat it complies with various
standards for military specifications, reliabilit) , maintainability, operability,
small and minority business utilization, and competition, to name a few. Each
of these advocates can demand that the program rnanager takeor refrain from
taking some action, but none of them has an\
responsibility for the ultimate
cost, schedule, or performance of the prograln.
46

 None of the purposes they advocate is undesirable in itself. In the
aggregate, however, they leave the program manager no room to balance their
many demands, some of which are in conflict with each other, and most of
which are in conflict with the program's cost a n d schedule objectives. Even
more importantly, they produce a diffusion o f management responsibility, in
which everyone is responsible, and 110 one is I csponsible.
Meanwhile, throughout this process, various committees of Congress are
involved. During the marketing phase, it is not enough for the program
manager to sell the program to his Service leaders anti the various staffs in the
Office of the Secretary of Defense. He also must sell the program to at least
four committees and to numerous subcommittcm of' Congress, and then resell
it for each fiscal year it is considered. In so doing, the program manager is
either assisted or opposed by a variety of contractors, each advocating its own
views of the program on Capitol Hill. While congressmen have an abstract
interest in greater program effectiveness, they also have an intense pragmatic
interest in their own constituencies. These t w o interests are frequently in
conflict, as they exert pressure on specific programs through legislative
oversight.
All of these pressures, both internal and external
to DoD, cause the
program manager to spend most of his time briefing his program. In effect, he
is reduced to being a supplicant for, rather than
a manager of, his program.
The resulting huckster psychology does not condition the program manager to
search for possible inconsistencies between performance and schedule, on the
one hand, and authorized funding, on the other.
Predictably, there is a high
incidence of cost overruns on major weapon systems programs.
But a much more serious result of this management environment is an
unreasonably long acquisition cycle-ten to fifteen Years for our major weapon
systems. This is a central problem from which nwsf other acquisition problems
stem:
It leads to unnecessarily high costs of development. Time is money, and
experience argues that a ten-year acquisition cycle is clearly more expensive
than a five-year cycle.
0

It leads to obsolete technology in our fielded equipment. We forfeit our
five-year technological lead by the time it takes us to get our technology from
the laboratory into the field.
0 And it aggravates the very goldplating that is one of its causes. Users,
knowing that the equipment to meet their requirements is fifteen years away,
make extremely conservative threat estimates. Because long-term forecasts are
uncertain at best, users tend to err on the side of overstating the threat.

47

 This description of the acquisition system is stark, but it by no means
men
exaggerates the environment of many, if not most, defense programs. C"
of
underlying
problems,
it
is
a
tribute
to
the
dedication
of
this pernicious set
many professionals in the system, both in and out of DoD, that more programs
do not end up in serious trouble.

48

 IV. An Acquisition Model To Emulate

P

roblems attendant to defense acquisition are not new, nor are such
problems unique to DoD. Rather, they are typical of the way in which large
bureaucracies, particularly government bureaucracies, manage large, complex
projects. With this in mind, we compared how other large institutions have
managed programs of similar complexity-that is, multi-year, multi-billion
dollar programs incorporating state-of-the-art technology.
Two recent efforts have been made
to draw such a comparison (see
Appendix F). Notably, average cost growth in nlajor defense programs has
been found to be less than that experienced t y many comparable civil
programs, including highway projects, water ~)rojects,public buildings, and
large processing plants. T h e good news from these studies is that DoD is n o
worse than other large bureaucratic organizatlons in managing major
programs.
This leaves unanswered, however, what le\rel of excellence can be achieved
in defense programs. To answer this question, a landmark study was
undertaken by the Defense Science Board (DSB) last year. T h e DSB compared
typical DoD development programs with succthssful programs from private
industry. It used as case studies the development of the IBM 360 computer,
the Boeing 767 transport, the AT8cT telephone switch, and the Hughes
communication satellite. Each of these programs compares
in complexity and
size to a major weapon system development, )et each took only about half as
long to develop and cost concomitantly less. ‘I‘hese commercial programs
clearly represent the models of excellence we are seeking, but it is not obvious
that DoD, or any large bureaucratic organizatlon, can follow successfully the
management procedures used in private industry.
To address that question, the Acquisition Task Force examined several
DoD programs that were developed under spctcial streamlined proceduresthe Polaris missile, the Minuteman missile, the air-launched cruise missile
(ALCM), and several highly classified projects. We found that, in these
programs, DoD achieved the accelerated schedules of the
successful
commercial programs.
It is clear that major savings are possible 111 the development of weapon
systems if DoD broadly emulates the acquisition procedures used in
outstanding commercial programs. In a few programs, DoD has demonstrated
that this can be done. T h e challenge is to extend the correct management

49

 techniques to all major defense acquisitions, and more widely realize the
attendant benefits in schedule and costs.
To this end, we analyzed a number of successful programs to identify
management features that they had in common, and that could be
incorporated in the defense acquisition system. We identified six underlying
features that typified the most successful comlnercial programs:
1. Clear command channels. A commercial program manager has clear
responsibility for his program, and a short, unambiguous chain of command to
his chief executive officer (CEO), group general manager, or some comparable
decision-maker. Corporate interest groups, wishing to influence program
actions, must persuade the responsible program manager, who
may accept or
reject their proposals. Major unresolved issues are referred to the CEO, who
has the clear authority to resolve any conflicts.
2. Stability. At the outset of a commercial program, a program manager
enters into a fundamental agreement or “contract”with his CEO on specifics of
performance, schedule, and cost. So long as a program manager lives by this
contract, his CEO provides strong management support throughout the life of
the program. This gives a program manager maximum incentive
to make
realistic estimates, and maximum support in achieving them. In turn, a CEO
does not authorize full-scale development for a program until his board of
directors is solidly behind it, prepared to fund the program fully and let the
CEO run it within the agreed-to funding.
3 . f imited reporting requirements. A commercial program manager reports
only to his CEO. Typically, he does so on a “management-by-exception” basis,
focusing on deviations from plan.
4. Small, high-quality staffs.Generally, commercial program management
staffs are much smaller than in typical defense programs, but personnel are
hand-selected by the program manager and are of very high quality. Program
staff spend their time managing the program, not
selling it or defending it.
5 . Communicafions with users. A cornmerckd program manager establishes
a dialogue with the customer, or user, at the conception of the program when
the initial trade-offs are made, and maintains that communication throughout
the program. Generally, when developmental problems arise, performance
trade-offs are made-with the user’s concurrence-in order to protect cost and
schedule. As a result, a program manager is nwtivated to seek out and address
problems, rather than hide them.
6 . Prototyping and testing. In commercial programs, a system (or critical
subsystem) involving unproven technology is realized in prototype hardware
and tested under simulated operational conditions before final design approval
or authorization for production. In many cases, a program manager establishes

50

 a “red team,” or devil‘s advocate, within the program office to seek out

pitfalls-particularly those that might arise from operational problems, or from
an unexpected response b y a competitor. Prototyping, early operational
testing, and red teaming are used in concert for the timely identification
and
correction of problems unforeseen at a program’s start.
It is clear from our earlier description that defense acquisition
typically
differs from this commercial model in almost every respect. Yet a number of
successful DoD programs have incorporated some or all of these management
features to a greater or lesser degree. We therefore concentrated our efforts
on deriving a formula for action-steps by whic ti defense acquisition can C O I T I ~
to emulate this model to the maximum extent practical.

51

 V. A Formula for Action
hile we would model defense acquisition after the practices of the best
industrial companies, we recognize the Ilnique problems DoD faces.
Management of the acquisition of military equipment requires a unique blend
of flexibility and judgment. The contributions of innovative scientists and
engineers, necessary for equipment toachieve maximum performance, must be
matched by those of military personnel who will use and maintain the
equipment. Overlaying these complexities is t h e need for an informed tradeoff between quantity and quality. At some point, more weapons of lower
performance can overcome fewer weapons of higher performance. Hence it is
necessary to achieve a critical balance between high military capability and low
life cycle cost. I n these and other respects, defense acquisition is one of the
most difficult management jobs.
Despite the difficulties, we believe it is possible to make major
improvements in defense acquisition by emulating the model of the most
successful industrial companies. Surely this will not be easy, because present
procedures are deeply entrenched. Acquisition problems have been with us for
several decades, and are becoming more intra table with the growing
adversarial relationship between government and the defense industry, and
the increasing tendency of Congress to legislate management solutions. In
frustration, many have come to accept the ten-to-fifteen-year acquisition cycle
as normal, or even inevitable.
We believe that it is possible to cut this cycle in half. This will require
radical reform of acquisition organization and procedures. It will require
concerted action by the Executive Branch and Congress, and the full support
of defense industry. Specifically, we recommend that the Administration and
Congress join forces to implement the following changes in the defense
acquisition system.

A.StreamlineAcquisitionOrganizationand
Procedures
As we noted in,ourInterim Report, federal law governing acquisition hasbecome steadily more complex, theacquisition system more bureaucratic, and
acquisition management more encumbered anct unproductive. In the absence
of a single, senior DoD official working full tirne to supervise the overall

52

 acquisition system, policy responsibility has become fragmented. As a result,
the Services have tended to assume policy responsibilities and to exercise them
at times without necessary coordination or uniformity. Worse still, authority for
executing acquisition programs-and accountability
for their results-has
become vastly diluted.
For these reasons, it is fundamental that we establish unambiguous
authority for overall acquisition policy, clear ;iccountability for acquisition
execution, and plain lines of command for those with program management
responsibilities. I t is also imperative that we streamline acquisition procedures.
This can be facilitated by five related action\:
1. We strongly recommend creation by statute of the new position of
Under Secretaryof Defense (Acquisition) and authorizationof an additional
Level I1 appointment in the Office of the Secretary of Defense (OSD).
This new Under Secretary should have t’ull-time responsibilitv for
managing the defense acquisition system. He should be a Level I1 Presidential
appointee and should have a solid industrial background in the management
of complex technical programs. T h e new LJllder Secretary should be the
Defense Acquisition Executive. As such, he should supervise the performance
of the entire acquisition system and set over,d policy for R&D, procurement,
logistics, and testing. He should have the responsibility to determine that new
programs are thoroughly researched, that military requirements are verified,
and that realistic cost estimates are made before the start of full-scale
development. (In general, we believe, cost estimates should include the cost of
operating and maintaining a system through its life.) He should assure that an
appropriate type of procurement is employed, and that adequate operational
also should be
testing is done before the start of high-rate production. He
responsible for determining the continuing adequacy of the defense industrial
base.
Appendix G sets out an illustrative reorgmization of acquisition responsibilities within OSD. Reporting to thenew Under Secretary should be a
Director of Kesearch and Engineering*; an i\ssistant Secretary of Defense for
Production and Logistics*; the Assistant Secretary of Defense for Command,
Control, Communications, and Intelligence; the Director of Operational Test
and Evaluation; and such other offices and itgencies as the Secretary of
Defense may designate. The Under Secretary should be responsible t o the
Secretary of Defense for balancing the sonlc.times conflicting views and
interests of these various offices. He should establish overall acquisition policy,
*We use these new titles to represent a reorganimtion of
officials reporting to the new Under Secretary.

acquisition responsibilities for

53

 as well as contract audit policy; should promulgate and issue appropriate
directives and regulations; and, except for criminal investigations, should
supervise oversight of defense contractors. Fin,llly, he should prepare annual
and other reports to Congress on major issues of acquisition policy and on
acquisition programs.
2. The Army, Navy, and Air Force should each establish a comparable
senior position filled by a top-level civilian Presidential appointee.
T h e Commission considered recommendal ions t o consolidate all defense
acquisition activities under the Defense Acquisrrion Executive, but concluded
that such centralization would not serve the cause of reducing the bureaucracv,
because it would tend to separate further the acquisition staff from the military
user. We believe that it is important t o maintain t h e Services’ traditional role in
managing new weapon programs.
Accordingly, we recommend that each o f ’ [ h e Military Departments
b y the Service Secretary in
establish a Service Acquisition Executive selectcd
consultation with the Defense Acquisition Exec u t i v e . T h e Service Acquisitior~
Executive should be a top-level civilian Presidential appointee, of rank
equivalent to a Service Under Secretary. He should be responsible for
administering Service acquisition programs uncler policy guidance from the
Defense Acquisition Executive; accordingly, he should have substantial
experience in acquisition and should devote full time t o his acquisition
responsibilities. For major programs, the Defellse Acquisition Executive and
his Service counterpart should function respeclively like chief executive
officers of a corporation and a principal corporate subsidiary.
’They should
resolve major issues anti conflicts as they arise, ; l n d represent programs before
most senior decision-makers (here, theSecretar! o f ’ Ikfense, the President, and
Congress, rather than a board of directors).
3. Each Service Acquisition Executive should appoint a number of
Program Executive Officers.
Each Service Acquisition Executive should appoint a number of Program
Executive Officers (PEO) who,like group general managers in industry, should
be responsible for a reasonable and defined number- acquisition
of
programs.
Program managers for these programs shouldbt: responsible directly to their
respective PEO and, on program matters, report only to him. In other words,
every major program should be set as
up a center of’excellenceand managed
with modern techniques. T h e Defense Acquisition Executive should insure that
no additional layers are inserted intothis program chain of command.
4. Federal laws governing procurement should be recodified into a
single, greatly simplified statute applicable government-wide.
A streamlined organization for defenseacqtlisition is not enough. It must

54

 be matched by streamlined procedures. Over the years, Congress and
DoD have
tried to dictate management improvementsi l l the form of ever more detailed
and extensive laws or regulations. As a result the legal regime for defense
acquisition is today impossibly cumbersome. For example, we have identified
394 different regulatory requirements in t h e Federal Acquisition Regulation
(FAR) and theDoD FAR supplement that arc. pegged to some 62 different
dollar thresholds, ranging from as little as$; 15 to as much as $100 million or
more. In our judgment, there
can be far fewttr of’these requirements, and those
that are retained can apply at far fewer dollal. thresholds.
The sheerweight of such requirements oftetl makeswell-conceived reform
efforts unavailing. At operating levels within DoD, it is now virtually impossible
to assimilate new legislative or regulatory refinements promptly or effectively.
For these reasons, we recommend that Congress workwith the Administration
to recodify federallaws governing procuremcbnt in a single, consistent, and
greatly simplified procurement statute.
5. DoD should substantially reduce the number of acquisition personnel.
The fundamental intentof the Commission’s recommendations is to
simplify the acquisition system by consolidating policy and oversight, reducing
reporting chains, eliminating duplicativefunc,tions and excessive regulations,
and establishing an environmentin which program managers and their staffs
can operate as centersof excellence. This should allow for a substantial
in the defense acquisition system, to
reduction in the total number of personnel
levels that more nearly comparewith commercial acquisition counterparts.
Eliminating a layer of management
by moving the functions and
people of that
layer to some other layerclearly will not suffic,e.

B. UseTechnology to Reduce Cost
We recommend a high priority on building and testing prototype
systems to demonstrate that new technology can substantially improve
military capability, and to provide a basis for realistic cost estimates prior to
a full-scale development decision. Operational testing should begin early in
advanced development, using prototype hardware. The early phase of R&D
should employ extensive informal competition and use streamlined
procurement processes. To promote innov;rtion, the Defense Advanced
Research Projects Agency should engage in prototyping and other advanced
development work on joint programs and in areasnot adequately emphasized
by the Services.
Fully exploiting our technological leadership is critical to the national
security. T h e Soviet Union has twice as many personnel in its armed forces,

55

 and produces military equipment in far grealer quantities than the United
States. We depend on our technological advantage to offset this quantitative
disadvantage. But o u r technology can be exploited i n two quite different ways:
to reduce cost (so that we can better competc- i n quantity), or to increase
performance (so that we can compensate for our smaller quantity).
We believe that DoD should place a much greater emphasis on using
technology to reduce cost-both directly by rcsducing unit acquisition cost and
indirectly by improving the reliability, operability, and maintainability of
military equipment. Cost reduction has been rl primary motivation in the
introduction of new technology to commercial products. This emphasis has led
to a tenfold reduction in the cost of computer products during the past decade.
DoD should give a similar high priority to cost reductions by exerting greater
discipline in the setting of performance requirements for
new platforms, and
by increasing the use of technology to extend she lifk of existing platforms. We
could, for example, extend the effective life o f most of our existing aircraft ten
to twenty years by replacing their electromecllanical subsystems with
modern
microelectronics. This would reduce the cost of' operating and maintaining our
aircraft, and at the same time improve their perfi)rmance.
In some of our new weapon systems-fighter aircraft, for example-the
need for maximum performance will be suffi(ierltly conlpelling to justify the
introduction of state-of-the-art technology. But this is not the case for all new
systems. A weapon system should be predicatcd on state-of-the-art technology
only when the benefits of the new technology offset the concomitant risks. This
principle, easy to state, is hard to apply because o f ' the difficulty in getting
reliable information with which t o make the crade-off of risks and benefits.
T h e only consistently reliable means of getting such information is by
building prototypes that embody the
new teclrnology. Accordingly, we
recommend that such prototyping, either at the
system or critical subsystem
level, be done as a matter of course for all malor weapon systems. Operational
tests should be combined with developmental '[ests of the prototype to uncover
operational as well as technical deficiencies 1.x.fi)r-ea decision is made t o
proceed with full-scale development.
'The early phase of K8cD should follow pwcedures quite different from
those of approved production programs, i n ot-der t o complete the entire
prototyping cycle in two or three years. C o n t ~ x t i n gshould be streamlined to
speed up the process of evaluating diverse new ideas. In the advanced
technology phase of a program, competition should play a critical role, but the
emphasis should be on an informal competition of' ideas and technologies,
rather than a formal competition of cost. At Ihis stage, a formal competition
based on detailed specifications not only is ineff'ective, but also introduces

56

 substantial delay. In Fact, recent emphasis o n cost competition has stretched out
the time required to let some R&D contracts t'rorn a few months to as much as
a year.
I n general, prototyping and testing in the early stage of
R8cD should be
done by the Service that would be the primary user o f the resulting system. In
order to promote the use of prototyping, however, we recommend expanding
the role of the Defense Advanced Research Projects Agency (DAKPA).
At present, DARPA conducts research and exploratory development
in
high-risk, high-payoff technologies. DAKPA should have the additional
mission of stimulating a greater emphasis on prototypingin defense systems. It
should d o this by actually conducting protot\rpe projects that embody
technology that might be incorporated in joint programs, or in selected Service
programs. On request, it also should assist tlte Services in their own
prototyping programs. T h e common objectike of all of these prototyping
programs should be to determine to what extent a given new technology can
improve military capability, and to provide a basis for making realistic cost
estimates prior to a decision on full-scale devcblopment. In short,, the prototype
program should allow us to fly-and know h o w much it will cost-before we
buy.

C. Balance Cost and Performance
A restructured Joint Requirements and Management Board (JRMB),
cochaired by the Under Secretary of Defense (Acquisition) and the Vice
Chairman of the Joint Chiefs of Staff, should play an active and important
role in all joint programs and in all major Service programs. The JRMB
should define weapon requirementsfor development, and provide thereby an
early trade-off between cost and performance.
Full-scale development of a new weapon system is the single most critical
step in the acquisition process. At this point, a number of fundamental
decisions must be made-whether to undertake a new development or adapt
an existing system, how far to push the new rckchnology being incorporated in
the system, what cost and schedule to authorize, and what the management
structure will be. Misjudgment about any of these items can start a program off
on a course that dooms it to failure. Currenth., this critical decision is made by
the Secretary of Defense, acting o n advice from the Defense Systems
Acquisition Review Council (DSARC), after the DSARC has made a detailed
review of whether the proposed system will nleet the stated user requirements
and whether the cost and schedule estimates are credible. The recommended
new emphasis on prototyping will contribute materially to improving the

57

 judgments about cost and schedule estimates. But the
DSARC process, while
adequate to determine whether the proposed specifications will meet the stated
user requirements, lacks a viable mechanism f . o r chccllrnging those requirements.
Fundamental to the ultimate success of a new program is an informed
trade-off between user requirements, on the one hand, and schedule and
cost,
on the other. Adelicate balance is required in forrnulating system specifications
that allow for a real advance in military capa1)ility but avoid goldplating.
Generally, users do not have sufficient technicd knowledge and program
experience, and acquisition teams do not haw. sufficient experience with o r
insight into operational problems, to strike
this critical balance. It requires a
for
blend of diverse backgrounds and perspectives that, because the pressures
goldplating can be so great, must be achieved at a very high level in DoD.
T h e DSARC is not the proper forum for effecting this balance. I t has had
very little success, for example, in stimulating the use of nondevelopmental
items as an alternative to developing unique ~rlilitary products. Any time the
military needs new trucks, tractors, radios, computers, and transpdrt aircraft,
for example, it should be the rule rather than the exception that
L h D adapts
products already developed by industry or b y t h e armed forces of an allied
nation. Much greater reliance on such items (ould realize major savings of
money and time, but experience indicates that a decision to use nondevelopmental items must come from a high
level in DoD, and must reflect
operational judgment as well as technical sopllistication.
We rechrnmend, therefore, that the J K M H be restructured to make such
trade-offs and then to decide whether t o initi‘tte full-scale development. T h e
JRMB should have this authority for all joint programs and appropriate
Service programs. It should evaluate major tr.tde-offs proposed as a program
progresses. Its determination, in effect, shoultl suhstitute for the decision now
made by the DSAKC at what is called Milestone 1 1 . T h e JKMB should be
cochaired by the Under Secretary of Defense (Acquisition) and the
Vice
Chairman of the Joint Chiefs of Staff.
‘Thus, the JKMB should be responsible f o r two decisions commonly made
in industry, but not now an explicit part o f DoII’s decision-making process.
One of these is the “affordability” decision, anrl the other is the “make-or-buy”
decision.
T h e affordability decision requires that a 5ubjectivejudgment be made on
how much a new military capability is worth. I f a new weapon system c;m be
developed and produced at that target
cost, it may be authorized for
development; otherwise, ways should be ~ O L I tJ o~ extend
~
the life of the
existing system. Determining a target cost is dif‘f’icult, t o be sure, but C E O s i n
industry must make comparably difficult deci.;ions on which their companies’
survival depends.
58

 T h e make-or-buy decision requires that the JRMB assess the need for a
unique development program, arld determitle if‘ it is possible instead t o buy or
adapt an existing commercial or military system. At present, DoD passes u p
many valid opportunities for adapting existing svstems, opportunities that
could improve military capability more qui( kly and at reduced cost.

D. Stabilize Programs
Program stability must be enhanced in two fundamental ways. First,DoD
should fully institutionalize “baselining” for major weapon systems at the
initiation of full-scale engineering development. Second, DoD and Congress
should expand the use of multi-year procurement for high-priority systems.
In connection with the decision to begill full-scale development of’ a major
new program, the program manager shoult t prepare a brief baseline
agreement describing functional specifications, cost, schedule, and other
factors critical to the program’s success. T h i s haseline agreement should be
submitted, through the responsible l’rogranl Executive Officer and the Service
Acquisition Executive, for approval bv thc. Defense Acquisition Executive.
Within the tertns of this agreement, tht. program manager should have
full authority to execute the program. He should be fully committed t o abide
by the program’s specifiedbaseline and, s o long as he does so, the Defense and
Service Acquisition Executives should support his program and permit him to
manage it. This arrangement would provide much-needed program stability,
which could be enhanced significantly if the program were approved for rnultiyear funding. We recommend that Congre,is approve multi-year funding for
the development arld low-rate production o f ’ all major programs approved for
full-scale development by the JRMB. In this way, Congress could join i n the
baseline agreement with the program manager, enhance program stability, and
promote lower unit prices.
A program manager should agree to a
baseline for all phases o f ‘ his
program. For the Acquisition Executives, however, the agreement should
extend only to the first two phases of a program, full-scale development and
low-rate production. Before a program could enter its third phase, high-rate
and operational testing.
production, it must be subjected to developmental
Operational tests are particularly critical, alld should continue through
fullscale development. T h e first units that coltle of‘f a low-rate production line
should be subjected to intensive operational testing. Low-rate production
should continue during testing, but a
prog1-am should not be approved for
high-rate production until the results of these
tests are evaluated.
T h e JKMB should then reconsider the program at
its second major
milestone-whether to authorize high-rate production, at what level of

59

 funding, and on what schedule. At this stagc,, available test results should
provide a realistic portrait of the weapon’s probable performance under
operational conditions, current intelligence data should
yield a realistic threat
estimate, and low-rate production experience should provide a
realistic
estimate of production costs. Thus, theJ R M B would possess the necessary data
to make an informed judgment on high-rate production.
If the JRMB so determines, a program Inanager could proceed in
accordance with the balance of his baseline agreement. Congress would be
asked to authorize multi-year funding for the production phase of the
program.

E. Expand the Use of Commercial Products
Rather than relying on excessively rigid military specifications, DoD
should make greater use of components, systems, and services available “offthe-shelf.” It should develop new or custom-made items only when it has
been established that those readily available are clearly inadequate to meet
military requirements.
N o matter how DoD improves its organization or procedures, the defense
acquisition system is unlikely to manufacture products as cheaply as the
commercial marketplace. Dol) cannot duplicate t h e economies of scale possible
in products serving a mass market, nor the power of the free market system t o
select and perpetuate the most innovative and efficient producers. Products
developed uniquely for military use and to military specifications generally cost
substantially more than their commercial counterparts. DoD program
managers accordingly should make maximum use of commercial products and
devices in their programs.
A case in point is the integrated circuit. o r microchip-an electronic device
used pervasively in military equipment today. This Year DoD will buy almost $2
billion worth of microchips, most of them manufa&ured to military
specifications. T h e unit cost of a military mic.rochip typically is three to ten
times that of its commercial counterpart. This is a result of the extensive testing
and documentation DoD requires and of sm;dler production runs. (Dol> buys
i n the U.S.) Moreover, the
less than ten percent of the microchips mad(.
process of procuring microchips made to military specifications involves
substantial delay. As a consequence, military microchips typically lag a
generation (three to five years) behind commercial microchips.
When military specifications for microchips were first established, they
assured a high standard of quality and relialtilitv that was worth a premium
price. The need for quality and reliability in rnilitary equipment is as great as
60

 ever. In the last few years, however, industrial consumers of microchips have
come to demand equivalent standards, and manufacturing processes anti
I t is now
statistical methods of quality control have been greatly improved.
possible for DoD program managers to buy thtb bulk of their microchips from
commercial lines with adequate quality and reliability, and thus to get the latest
technology at a substantially lower cost. T h e Electronic Systems Division,
responsible in the Air Force for thequality of‘electronic devices, recently began
revising its procedures to achieve these objectivtrs. We recommend that the Air
Force accelerate its efforts and that the &her Services follow its lead.
This same principle-the expanded use of c.ommercia1 items-can apply t o
a great variety of products and services bought 11). DoD. ‘These range from
personal computers, computer software, and professional services, to a host of
non-technical products such as bath towels and steak sauce.
We recommend that the DefenseAcquisition Executive take steps to assure
a major increase in the use of commercial products, as opposed to those made
to military specifications. H e should direct that program managers get a waiver
before using a product made to
military specifications, if there is an available
Commercial counterpart. When a “make-or-bu\~” decision must be made, the
presumption should be to buy. This would in&rt present procedures, biasing
the system in favor of commercial products and services, but permitting the use
of items made to military specifications wheneLer a program manager believes
it necessary to do so.
In addition, we recommend that the DOL) Supplement to the Federal
Acquisition Regulation be changed to encourage streamlining military
specifications themselves. Applying full militarv specifications, far from being
ideal, can be wasteful. A program manager should
strive to invoke neither
minimum nor maximum, but only relevant, requirements; and he should think
in terms of optimization rather than deviations and waivers.
Thus, DoD should reduce its use of military specifications when they are
not needed, and should take steps to improve the utility of military
specifications when they are needed. ?‘his will require a serious effort t o
harmonize military specifications with the various commercially used
specifications. For example, required military clrawings for integrated circuits
could incorporate a manufacturer’s standard design specifications, test
methods, and test programs. More generally, lnilitary specifications could be
by the American
based on industry standards, such as those promulgated
National Standards Institute and the America11Society for Testing and
Materials. This would provide the technical urlder-pinning for DoD to make
substantially greater use of commercial devices anti products, and thereby take
advantage of the much lower costs that result from larger production runs.

61

 One indirect benefit of buying commercial products
is that the price is
determined by market forces. This should relieve DoD of the administrative
burden and cost of verifying a producer's overhead costs. For DoD to re a 1'1ze
the full benefit of commercial buying, it should let competitive market forces
provide a checkon price and directits own attention to validating quality.
A more detailed explanationof current issues concerning the expandeduse
of commercial products is contained in ApperldixH.

F. IncreasetheUse

of Competition

Federal law and DoD regulations should provide for substantially
increased use of commercial-style competition, emphasizing quality and
established performance as well as price.
Even when commercial products are nor suitable for DoD's purposes, it
can still use commercial buying practices to real advantage. Foremost among
these practices is competition, which should t)e used aggressively in the buying
of systems, products, and professional services. DoD clearly understands the
need for such competition, which was articulated in the 1981 Carlucci
Initiatives. Although DoD has made major efforts i n this direction, much more
can be done. It is particularly important t o focus on achieving more effective
competition, modeled after the competitive 1)rocurement techniques used
in
industry.
Commercial procurement competition simultaneously pursues several
related objectives: attracting the best qualified suppliers, validating product
performance and quality, and securing the
best price. Price is, of course, as
important a factor in commercial procurement as it is in DoD procurement.
the
But it is only one of several equally important factors. Price should not be
sole determinant, especially for procurement o f ' complex systems and services.
Defense procurement tends to concentrate heavily on selecting the lowest price
offeror, but all too often poorly serves or even ignores other important
objectives.
I n validating product quality, for example, D o L ) places too much emphasis
on specific details of how the manufacturing 1)roc:ess is to be done and toolittle
on modern techniques of quality control. lrl(lustry makes extensive use of
statistical sampling, and will accept or reject : ~ I Iorder on that basis. Typically,
an industrial company will keep lists of qualit'iect suppliers that have
maintained historically high standards of product quality and reliability. As
long as these standards are maintained, industrial buyers do not require
exhaustive inspection, and thereby save experlse o n both sides. Suppliers are
highly motivated to get-and stay-on lists o f qualified suppliers b y

 consistently exceeding quality control stantlards.
Moreover, because competition is not a one-way street for the buyer,
defense procurement practices must be le!?s cumbersome if’ DoI) is to attract
the best suppliers. Procurenlent officers m u s t he allowed and encouraged to
solicit bids through purchase descriptions that are stated as functional
performance characteristics rather than through detailed design and “how-to”
specifications; to limit bids to qualified sul)pliers; t o give preference t o
suppliers that have demonstrated the qualitv and reliability of their products;
and t o recognize value (quality and price) I&xj o n products’ cornmercia~
acceptance in the marketplace. These p r a t i w s ha\^ been found to yield
effective competition in the comnlercial f’ic.ld, and their use i n defense
acquisition could provide better military ec1uipment at no increase i n cost.
Although Congress has ardently advoc.att.d increasing competition, some
provisions of recent legislation i n fact work ar cross purpose to that objective.
For example, burdening suppliers of off-the-shelf catalog items t o identify all
component parts and their producers, or 1 0 submit detailed pricing
certifications, inhibits qualified companies t’rorn competing for government
contracts. Regulatory implementation-fol
example, Don’s efforts to require
contractors to release rights i n technical &ita o n their products-has a similar
effect.
A further problem stems from confusion regarding the intent of recent
legislation-notably
the Competition i n Contracting Act’s (CICA) requirement
of “full and open competition,” which S ~ I I I Ch’ a v e interpreted to mean that the
government must buy from the lowest offi.ror.. (:ICA sought t o make it clear
that the award of a contract through colnpetilive negotiation
is a method of
procurement no less acceptable than an a\vard using formal advertising
or
sealed bids, and thus to recognize that co~~~pt‘tition
entails more than just an
assessment of lowest price. This goal has bcen obscured by the notion that full
anti open competition precludes the govel nrnent from establishing
qualification criteria, and forces the award o f ’ a contract based on price without
regard, for example, to technical expertist. OJ’ life cycle costs. ‘I‘his reinforces
DoD’s proclivity for writing detailed military specifications rather than
functional product descriptions-in this contt‘xt, i r l order to insure that all
bidders offer identical items. At the same tllne, however, these narrow product
specifications preclude the acquisition of Itlosr commercial products and, in
effect, DoD’s doing business with many qualif‘ietl suppliers. Thus, the full
potential of CICA is not being realized bec:ause of a focus on t h e quantity
rather than the quality of competition.
I n sum, w e believe that DoD should greatly increase its use o f truly
effective competition, using as a model the competitive buying practices of

63

 major corporations and their suppliers. We recommend the elimination of
those legal and regulatory provisions that are a t variance with full
establishment of commercial competitive pr,lctices.

G . Clarify the Need for Technical Data Rights
DoD must recognize the delicate and necessary balance between the
government’s requirementfor technical data and the benefitto the nationthat
comes from protecting the private sector’s proprietaryrights. That balance
must be struckso as to foster technological innovation and private investment
which is so important in developingproducts vital toour defense. DoD
should adopt a technical data rights policy that reflects thefollowing
principles:
0

If a product has been developed with private funds, the government
should not demand, asa precondition for buying that product,
unlimited data rights (except as necessary for installation, operation,
and maintenance), even if the government provides the onlymarket.
Should the government plan later to seek
additional (competitive)
sources, the required data rights should be obtained through theleast
obtrusive means (e.g., directed licensing) rather than through the
pursuit of unlimited rights.
If a product is to be developed with mixed private and government
funding, the government’s rights to the data should be defined during
contract negotiations. Significantprivate funding should entitle the
contractor to retain ownership of the data, subject to a license to the
government on a royalty-free or fair royaltybasis.

0

If a product is developedentirely with governmentfunds, the
government normally acquires allthe rights in the resulting data. To
foster innovation, however, the governmentshould permit therights to
reside inthe contractor, subjectto a royalty-free license, if the data are
not needed for dissemination, publication, or competition.

DoD is a major developer and user
of high technology, mostof which comes
from government contractors.DoD can use its unique position to enhance
U.S. industry’s worldwide technological position; or unwittingly, through the
pursuit of other shorter termgoals, to reduce incentives for developing new
technology; or, even worse, make commerciallyvaluable technology available to

64

 international competitors. It is in our national interestto encourage innovation
in the U.S.; and we should heed the words of‘Abraham Lincoln: “The patent
system added the fuel of interest to the fireof genius.”
it acquires, DoD must have
In order to operate and maintain the systems
certain rights to use internally technical data pertaining to products developed
by its contractors. DoD’s suppliers fully understand this need. Recently,
however, these suppliers have become alarmedby DoD’s increasingly vigorous
pursuit of unlimited rights in technical data tobe used in fostering competition.
is reflected in
DoD’s search for technical data needed to obtain competition
the Department’s new rights-in-data regulatiolls andin its contracting actions.
This search has been intensifiedas a result of unfavorable publicity, as well as
i n both
recent legislative initiatives regarding competitlve procurement practices
DoD and the civil agencies. T h e two principal statutes resulting from these
initiatives are broad and are thus
susceptible to varying interpretation,
particularly where the statutes use different words
to address the same point.
But DoD’s approach to these problems is shaped less by statute than by its own
policies. Because no concrete, plainly stated government-wide rights-in-data
policy has been adopted or insisted upon, the Department (and eachof the
Services within DoD) has been left to developa n individual approach.
An authoritative statement of government-wide policy on balancing the
interest of the parties in technical datais required. This in turn must be followed
by specific implementing guidance in the Federal Acquisition Regulation (FAR),
supplemented as necessary in the DoD FAR Supplement (DFAKS). This
guidance must embody uniform concepts and definitions
to overcome the
confusion and disagreement thatnow prevail among the separate components
of DoD and among the departments and agencies
of‘the executive branch.
The technical data rights regulations as now proposed need much work if
they are to befully responsive to the statutes, clearand consistent enough to
be
followed, and equitable. In this regard, DoD’s rights-in-technical-data contract
clause should be simplified and made moreprt:cise and workable.
In addition to refinement of the statutes
arid basic reworking of the
procurement regulations touching on technical data, improvements are needed
in the areas of commercial product data, software (which should have special
treatment), and technical data management.A detailed analysis of the technical
data rights issueis contained in Appendix I.

H. Enhance the Qualityof Acquisition Personnel
1

DoD must be able to attract and retain the caliberof people necessary for
a quality acquisition program.
Significant
improvements
should be made in
the senior-level appointment system. The Secretary of Defense should have

t
65

 increased authority to establish flexible personnel management policies
necessary to improve defense acquisition. An alternate personnel
management system should be established to include senior acquisition
personnel and contracting officers as well as scientists and engineers.
Federal regulations should establish business-related education and
experience criteria for civilian contracting personnel, which will provide a
basis for the professionalization of their career paths. Federal law should
permit expanded opportunities for the education and training of all civilian
acquisition personnel.
O u r study convinces us that lasting progress in the performance of the
acquisition system demands dramatic impro\ ements in our management of
acquisition personnel at all levels within I h I ) .
A pivotal recommendation of the Comnlission is the establishment of the
position of Under Secretary of Defense (Accluisition) and comparable Service
positions, all to be filled by leaders with out.;tanding business management
credentials. Recruiting the most capable executives for jobs of such importance
to the nation is extremely difficult, however, i n the face of current disincentives
to entering public service. A recent report o f ' the Presidential Appointee
Project of the National Academy of Public Adnlinistration* analyzes this
problem and details twenty-three separaterec.ornrrlendations for improving the
recruitment of senior-level Executive Brancll p-sonnel. These include, for
example, specific suggestions for simplifying financial disclosure reports and
for allowing Presidential appointees to defer
capital gains taxes incurred by
divesting assets to comply with conflict-of-intcrest provisions. Such steps would
improve the government's ability to attract a t l d retain the highly qualified
people needed for effective senior managenlent of' defense acquisition. We
strongly support these proposals.
Comparable improvements also are required for effective middle
management and better line personnel. 'r'he defense acquisition work force
mingles civilian and military expertise in numerous disciplines for management
and staffing of theworld's largest procurement organization. Each year billions
of dollars are spent more or
less efficiently, t,ased on the competence and
experience of these personnel. Yet, comparecl t o its industry counterparts, this
workforce is undertrained, underpaid, and inexperienced. Whatever other
changes may be made,it is vitally important to enhance the quality
of the
defense acquisition workforce-both by attracting qualified new personneland

*Leadership In Jeopardy: The Fraying of' the P r c d e ) l t i ( d Af)f)ointmmts System (Final Keport of'
the Presidential Appointee Project); November
1985.

66

 by improving the training and motivation of current personnel."
The General Accounting Office (GAO) has heen engaged in an important
study to evaluate the capabilities o f DoD program rnanagers and contracting
officers. The results of GAO's study' confirnl the central importance of'
improving the quality of training for these t w o critical acquisition specialties.
The caliber of uniformed military persolinel engaged in program
management has improved significantly of late. Military officers manage over
90 percent of DoD's roughly 240 program offices. 'I'heir ranks range from 0-5
(lieutenant colonel/commander) to 0-8 (major general/rear admiral). Each of
the Services has established a well-defined acquisition career program for its
officers. These include the Army's Materiel ,\cquisition
Management (MAM)
program, the Navy's Materiel Professional (MP) programs, and detailed career
planning regulations for Air Force technical personnel and program managers.
We strongly support these measures. We also support recent legislation that
has further defined career paths for all program managers. In 1984, Congress
established a minimum four-year tenure for program management
assignments. T h e 1986 Authorization Act prcwribed requisite qualifications
and training, including at least eight years o f ' acquisition-related experience
and appropriate instruction at the Defense Svstcms Management College (or
equivalent training).
By contrast, much more remains to be done concerningcivilian acquisition
personnel generally. Civilians frequently cite the rigid pay grades and
seniority-based promotion standards of the federal civil service as disincentives
to continued employment. Higher pay and better opportunities in private
industry lure the best college graduates and the brightest trainees away from
government, particularly in such highly competitive fields as science,
engineering, and contracting. One extremely Important means to improve the
acquisition workforce is to establish an alternar ive personnel management

*To this end, the Assistant Secretary of Defense tor Acquisition and Logistics recently
proposed creating a single Defense Acquisition C h r p , modeled after the State Ilepartment's
Foreign Service. See D o n Acquisition Improvemen--7'h Ch(lllengPCrPS Ahead, Perspectives o f ' the
Assistant Secretary of Defense for Acquisition anti L20pictics:White Paper No. 2-Revitalization
of the LIoD Acquisition and Logistics Workforce ( N o \ . 5, 1985). We studied this proposal
caref'ully, and support many of its specific features. liecause it would have the undersirable
result of putting too much distance between acquisition programs anti users, however, we do
not support the proposal in its full form.

$See U.S. General Accounting Office, DoD Acquicitiorl: Cupabilitirs of KPYDol> Personnrl in
System Acquisition (GAOiNSIAD-86-45).

67

 system permitting greater flexibility with respect to the status, pay, and
qualifications of civilian employees.
We reviewed the results of the Navy’s so-called China Lake personnel
project, in which recruitment and retention of key civilians were correlated
with pay, incentives, and advancement based on performance. ‘The China Lake
experiment, which is outlined briefly in Appendix J , served to increase the
retention of engineers andscientists, improve supervisor-employee
relationships, and dramatically reduce managenlent paperwork.
Legislation is
now pending to implement such a system for all federal scientists anti
engineers. ‘The China Lake personnel system has produced significant benefits.
I t merits expansion. We therefore recommend
that federal law permit the
Secretary of Defense to include
other critical acquisition personnel in such a
system, and facilitate greater professionalisnl arnong civilian acquisition
employees through government sponsorship o f ‘ graduate instruction in
acquisition management.
Among acquisition personnel, contract specialists have an especially critical
role. More than 24,000 members of DoD’s accluisition workforce specialize in
the award and administration of contracts.
Eighty-five percent of these contract
specialists are civilians. Contract specialists niust Inaster the extensive, cornplex
body of knowledge encompassing materials and operations management,
contract law, cost analysis, negotiation techniques, and industrial marketing.
Yet, the Office of Personnel Management designates the Contract
Specialist
personnel series (GS 1 102) as an administrative and not a professional series
under Civil Service ‘Title VIII. This administrative designation prohibits the
establishment of any business education requirement for contract specialists. As
a result, only half of DoD’s contract specialisrs have college degrees, which may
or may not be business-related. We recomrrlencl establishing a minimurn
education and/or experience requirement ti )I‘ the Contract Specialist series.
Such a requirement, similar to that now est.111lished for the Accounting
personnel series, would mandate an entry-ltbvel criterion of twenty-four
semester hours in business-related courses or equivalent experience.
Independently, DoD should enhance t h e professional status of contract
specialists by increasing the number of outside hires, conducting on-campus
recruitment, mandating the use of written
rests for in-service placement and
promotion, and establishing upward mobililv programs for purchasing agents
(GS 1 105) and procurement clerks (GS 1 lOtj). DoD already has established
acquisition training programs at five major f‘acilities, and requires that all
civilian contract specialists complete an averagt. o f ’ six-hundred hours of‘
mandatory training. According to a 1984 rc’port of the DoD Inspector

68

 General,* however, approximately two-thirds of all DoD contract specialists
had not completed this training. In a recent report, the Executive Committee
on Federal Procurement Reform' also recognized the inadequate training
given contract specialists.
Insufficient management attention and financial resources are serious
impediments to adequate training of' contract specialists and, for that matter,
all acquisition personnel. Such training-like
that provided generally in DoD
intern programs-should
be centrally managed and funded. This is necessary
to improve the utilization of teaching faculty, t o enforce compliance with
mandatory training requirements, and to coordinate overall
acquisition
training policies.
Training, promotion opportunities, acquis~tion regulations, education
levels, and public perceptions were among the many issues addressed in the
Commission-sponsored 1986 Suruey of Departmentof Defense Acquisition Workforce.
The Commission conducted its survey to deterrnin'e the opinions and
perceptions of those who must translateproccbdures a n d policy into contract
to attract, motivate, and
decisions and to learn from the workers themselves how
retain a team of excellence. The study, whichis summarized in Appendix K,
focuses on contractspecialists, with a matched sampleof other acquisition team
members responding for comparison.
This survey provides powerful support for many
key Commission
recommendations-clarifying regulations, streamlining organization, enhancing
education and training, building a personnel
system based on performance, and
designing a compensation system sufficiently flexible to attract and retain the
best available team players.
Key findings of the survey are:
0

DoD's acquisition team members say they operate under inefficient,
confusing regulations which often are inconsistentwith sound business
practices.

0

In evaluating therelative competence of' their fellow DoD team players,
contract specialists, in every case, express greater confidence in the
capabilites of defense industry personnel.

*Office of the Inspector General, DoD, Heport on /he Audit of Department of Defense
Procurement Training, No. 84-047 (Feb. 14, 1984).
?Executive Committee on Federal Procurement Kcforrn
'Task Group No. 6 , Guidance on
Ctnblashing Procurement Ca,reer Management Pro<grarns, V, d. I (May 1985).

69

 0

Members of headquarters staff are ratcd as least likely to provide needed
support to other team members.

0

Nearly one-third of the respondents feel that their supervisors do not
really know whether or not jobs are performed
well. Another 30 percent
feel their formal evaluationsdo not acc urately reflect performance.

0

Civilians, who form the majorityof the work force, name pay and
benefits as their most valued work reward and overwhelmingly believe
private sector compensation for similar work to be much greater.

0

A majority of the respondents say that important resources suchas time,
office space and equipment, and clerlcal support are lacking to such a
degree that professional effectivenessis significantly hampered.

In spite of such difficulties, these acquisition workers describe themselves
as
possessing a healthy self-respect, taking great pridein meeting the challenges of
defense acquisition, and using their talentsto serve their country. They want to
provide quality defense products andservices to the American military. They
take seriously their moral responsibilitiesto the taxpayers, saying that the nature
of defense contracting requires higherethical standards than does normal
business practice.
T h e wealth of data produced by the surcey has immense potential for use
by management to improve bothefficiency arid effectiveness of the acquisition
process. T h e Commission commends the survey and its data base to the new
Under Secretary for Acquisition,with a strong recommendation to make
maximum use of them as management tools in striving for excellence.

1. Improve the Capability
for Industrial Mobilization
We recommend that thePresident, through the National Security
Council,
establish a comprehensiveand effective national industrial responsiveness
policy to support thefull spectrum of potential emergencies. The Secretary of
Defense, with advice from the Joint Chiefs of Staff, should respond
with a
general statement of surge mobilization requirementsfor basic wartime
defense industries, and logistic needs to supportthose industries and the
essential economy. The DoD and Service Acquisition Executives should
consider this mobilization guidance in formulating theiracquisition policy,
and program managersshould incorporate industrialsurge and mobilization
considerations in program execution.

70

 Historically, the United States has not worried much during peacetime
about industrial mobilization.All the major wars fought in this century have
allowed ample time for unhindered industrial buildup after the beginning of
hostilities. At this time there is no effective nationalpolicy on industrial
mobilization even though themissions of various agencies include
responsibilities in these areas.
T h e DoD’s own industrial facilities (e.g. arsenals, shipyards, and
manufacturing equipment) are aging. United States industry
is becoming
increasingly dependent on foreign sources forllot only strategic raw materials
but subassemblies and manufactured components. American industry
essentially does no mobilization planning.With a few exceptions, contractors are
not given firm requirements uponwhich to base their planning; and in any case,
the preparation of such plans
is not funded by DoD.
Our concepts of stockpiling-historically done at the raw-materialslevel
and driven by domestic politics-need modernimtion. Components and
structures that can make a difference in the early period of crisis
a
should be
stockpile candidates-not solely ores (that require a year or more to move
through the economy).
is
In mobilizing industryto meet crisis and wartime needs, time, not money,
the major constraint. DoD can no longer assume that American industrywill be
able to respond automatically to production surge requirements. Additionally,
dependence on foreign sources is becoming common for economic reasons.
This can have serious consequences for maintenance our
of technology base for
the next generationof weapons and equipment.
Finally, DoD’s procurement practices lead to significant disincentives for
U.S. manufacturers to modernize their production processes, and thus impact
both peacetime efficiency as well as crisis responsiveness.
Production surge capabilityis essential for improved readiness and
sustainability of United States forces. Up to now, planning for surge and
industrial mobilization has been an ad hoc affair, largely the result of individual
initiatives rather than done on a regularbasis or in response to a shift in the
threat, U S . national strategy, or world economic- conditions. Industrial
preparedness typically loses out in the competition forDoD funds. The problem
has been studied, reviewed, and analyzed
by many-with documented findings.
There is a need now for selective and prudent investments to obtain real
improvement in industrial base responsiveness.

71

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Chapter Four

Government-Industry
Accountability

THIS PAGE IN TEN TIONALLY LEFT BLANK

I. Introduction

0

u r study of defense management compels
u s t o corlclude that nothing
merits greater concern than theincreasingly trout)led relationship between
the defense industry and government.We have, ther-efore,given highest
priority to development of recommendations whit.h, if’implernented, will r-esult
in a more satisfactory working relationship hetwet’ll go\!ernrnent and that
industry. In ourInterivn Report, we made six broad rcc.olllrnen~lations directed
toward improving that relationship. It1 this con( Iusioll of’our w o r k , we of’fkr
troul)lesome aspects of
more detailed observations thatwill treat the 111o1-c~
government-industry accountability.
From its earliest days, the United States has rclied on private industry for
procurement of needed military equipment. The \,isor o f ’ industry is
indispensable to the successful defense of Americ,r m l c l the security of o u r
people.
The Departmentof Defense (DoD) annually
c.onducts business with sotne
60,000 prime contractors and hundredsof thc;usarlds of other suppliersand
subcontractors.’ In 1985, the Department placed (x)ntracts worthappr-oxirnately
$164 billion, seventy percent of which went t o a group of 1 0 0 contractors.
Twenty-five contractors did business of $ 1 billion or tnore, 147 did $ 1 0 0 million
or more, andalmost 6,000 did$1 million o r mort .
Acquisition of the tools o f defense is a n ilnmcwsc ; m d complex enterprise.
been
T h e Commission believes that DoD reliance 011 priv~te industry has not
misplaced. T h e success o f this enterprise, however, is n o w clouded by repeated
allegations of fraudulent industry activity. With notal)le results, DoD has
devoted increased attention and resources t o dett.cting m d preventing ~ ~ n l a w f ‘ u l
practices affecting defense contracts.2R u t a plet h o r - a o f departmental auditors

75

 and otheroverseers-and the burgeoning directives pertaining to procurement
-also have tended to establish a dysfunct.iotla1 and adversarial relationship
between DoD and its contractors.
Widely publicized investigations and prosccutions of large defense
contractors have fostered an impression ofwiciespread lawlessness, fueling
popular mistrust of the integrity of defense industry. A national public opinion
survey, conducted for the Commission inJanuary 1986, revealed that many
Americans believe defense contractors custonmrily place profits above legal and
ethical responsibilities. T h e following specifrc conclusions can be drawn from
this ~ u r v e y : ~
0

Americans consider waste and fraud i r r defense spending a very serious
national problem and one of major proportions. On average, the public
believes almost halfthe defense budget is lost to waste and f’raud.

0

Americans believe that fraud (illegal activity) accounts for as muchloss in
defense dollars aswaste (poor managetnent).

0

While anyone involved in defense procurement is thought likely t o
commit fraudulent and dishonest acts, defense contractors are
widely
perceived to be especially culpable for fl-aut! i n defense spending.

0

In overwhelming numbers, Americans support imposition of the severest
penalties for illegal actions by contractors-including more criminal
indictments--as a promising means t o reduce waste and fraud.

0

Nine in ten Americans believe that the goal of reduced fraud andwaste
also could be served through development and enforcement of strict
codes of conduct. Americans arealmost evenly divided, however, on
whether defense contractors can be expvcted to live u p to codes they
develop for themselves.

%Thesurvey -U.S. National Survey: Public Attitudeson Defense Management (Jan. 1986)-was
designed to provide the Commission information about American public opinion on a broad
range of defense management issues. These included, Jmong others, the seriousness and causes
of waste and fraud in defense spending, aswell as posstble solutions for these problems.T h e
survey was performed by Market Opinion Research, M hose compilation and analysis of survey
results are included as Appendix
L to this Final Report.

76

 0

Four in five Americans think that clefcnse contractors should feel an
obligation, when doing business with l)oll, to observe ethical st;mdards
higher than those observed in their nornl;ll business practices.

The depthof public mistrust of defensc, contracting is deeply disquieting
for a numberof reasons. First, thepublic is ;Ilrrlost certainly mistaken about the
extent of corruptionin industry and waste i l l the Department. While fraud
constitutes a serious problem, it is not as extc'nsive or costly a s marly Arrlericans
believe. T h e nation's defense programs lose far more to inefficieIlcy than t o
dishonesty.
Second, a lack of confidence in defense cotlt t x t o r s may affect public
x ~ thus
d weaken our national
support for important defense programs,
security. Restoring public confidence in our acquisition system is essential if' w e
are to ensure our defense.
o f ' runaway fraud andwaste
Third, the current popular impression
undermines crucial support for implernentillg p~-ecisely those management
reforms that would increase efficiency. These illclude executive and
congressional support for sensible new longer-term planning and budgeting
procedures, recommended by the Commission, t o eliminate major h u t hidden
costs that instability imposes on ouroverall clefense ef'fort.
Fourth, the Commission is concerned tllat the current adversarial
atmosphere will harm our industrialbase. 11 is important that innovative
companies find it desirable to contract w i t t l DoD. I n current circumstances,
important companies could decideto forego this opportunity.
Finally, it is significant that private busillesses bear the brunt of public
indignation over waste and fraud in our defense programs.With most
Americans, we believe that those who corlt ract i n the defense of'our country
must perform at a higherlevel than business as usual. It stands repeating, from
our Interim Report, that:
management and employees of companies t h a t contract with the Def'ense
Department assume unique and compelling obligations t o the people o f
our Armed Forces, the American taxpaver. m c l our nation. 'I'hey must
apply (and be perceived as applying) tlre highest standards o f business
ethics and conduct.

By this measure, the national opinion surl'ey representsa striking vote of no
confidence in defense contractors generally.
Though government oversightis critically important to the acquisition
process, n o conceivable number of additional federal auditors, inspectors,
investigators, and prosecutors can police it t'ully, rnuch less make it work more
77

 effectively. Nor have criminal sanctions historicdly proved t o be a reliable tool
for ensuring contractorcompliance.’ We conclude there is a particular urgency
in dealing affirmatively with contractor practices.
To this end, leaders in the defense industry recently have committed
themselves to an initiative, consistent with reconlmendations of ourInterim
Report on Government-Industry Accountability, that promises collective and
highly constructive action. This noteworthy effort is embodied in a document
to adopt and
signed to date by at least 32 major defense contractors who pledge
of principles of‘business ethic.s and conduct that
to implement a set
acknowledge and address their corporate
respo~lsiibilities under federal
. ~ signatories pledge to:
procurement laws and to the p ~ b l i cAll
0

have and adhere to written codes of conduct:
train their employees in such codes;
encourage employees to report violations o f - such codes, without fear o f
retribution:

0

monitor compliance with laws incident t o ciefknse procurement;
adopt procedures forvoluntary disclosure o f ‘ violations and for necessary
corrective action;
share with other firms their methods for; t n d experience in implementing
such principles, through annual partkiption i n at1 industry-wide “Best
Practices Forum”; and
have outside or non-employee members o f ‘ their boards of directors
review compliance.

4Prosecutorial resources are limited. Evidenceo f critl1in;tl conduct is often insufficient f ’ o r
proof beyond reasonable doubt. Some cases lack proseclltive merit or,jurv appeal. I n others,
criminal sanctions are deemedless appropriate than atinlitlistl-~ttive remedies.
Still other cases
involve little or no financial loss to the federal povemrnc-nt.For these and other reasons, the
Department ofJustice declinesto prosecute approximately six in ten possible fraud cases
referred to it by federal agencies. See U.S. General Acxounting Of‘fice, Frclud in ( h w t l m o t l t
Programs: How Extensive I s I t ? tiow Cnn I t H e Controlled? (;AO/AFMI)-81-57, at 28-30 (May 7 ,
1981).
5SeeDefense Industry Initiatives on Business Ethics and Conduct(June 1986),included as
Appendix M to this Final Report.

78

 To lend additional force andcredibility t o their initiative, these contractors
further propose that a respected organization, independent of both the
to report annually the
government and defense industry, be commissloned
results of a surveyassessing compliance with t h e above principles.
Such a commitment by its leaders would bt. an impressive undertaking for
any industrial group, andit is particularly a p p opriate
~
for defense cont.ractors.
We hope many other firmswill make this pledgc of'self-governance and share
in
an initiative voluntarily begun and freelyjoinetlh y defense contractors
themselves. At least one major industryassocialion is, we understand,
;I c.ondition of membership.
considering making adherence to these principles
We are convinced that significant irnprovelllcllts i n corporate selfgovernance can redress shortcomingsin the procurement system and create a
more productive working relationshipbetween government and industry.
Corporate managers must takebold and constructive steps that will ensure the
integrity of their own contract performance. Systems that ensure conlpliance
with pertinent regulations and contract requit.ements must be put i n place s o
that violations do not occur. When theydo occ~lr,
contractors have
responsibilities not only to take immediate cot-rec.ti\.eaction but also to make
disclosures to DoD.
We do not underestimatethis task-it is enorrrlous and demanding.
Requirements of diligence imposedo n contractor m;magernent are
unquestionably stringent but are not more strillgent than the public has a right
to expect of those who holdpositions of autholity w i t h businesses on which the
national security depends. Contractor effort t o impro\,e performance should
not be impeded by DoD action; instead DoD sllould foster ef'fective contractor
self-governance. I t is in this context that we of'f'er the recomrnendatiorls that
follow.

79

 II. Industry Accountability: Contractor
Self-Governance

I

n o u r view major improvements in contractor- self’-governance are essential.
Contracting with DoD is markedly differelit from other commercial
contracting activity. Defense contractors must observe various unique and
complex contractual, regulatory, and statuto1v requirements in bidding for,
A distinct hody
performing, and warranting fixed-price and cost-type contracts.
of contract principles hasevolved in the defensc. contracting field.
Recent cases have involved violations of specific contractual and regulatory
provisions. Many of these violations have resulted from nlanagement f‘ailure to
establish internal controls to assure compliancew i t h unique DoD requirements.
Contractors historically relied on DoD auditors t o itlcntify instances where
t o establish internal controls
standards were not followed, and contractor fallure
has developed in this regulated environment. Also in this environment,
contractor defaults were largely resolved contractually rather than through
criminal or civil actions.
Today, defense contractors should be aware that a concerned and
responsible government will aggressively enf0rc.e compliance. Contractorswill
be required to do much more than they ha\.e clone in the past to comply with
contractual, regulatory, and statutory standardsatld to provide adequate
-1.0 ( t o so will necessitate their putting
supervision and instruction for employees.
in place broad and effective systems of interIlal control.T h e effectiveness of
such systems depends upon ahost of factors, irtcluding:
0

good organizational structure, providing for proper delegationof
authority and differentiation ofresponsihilities;

0

clear policies and procedures, well adapted t o business objectives and to
specific tasks and functions;
training of and communicationwith em1)lo)ees at all perf-ormarm levels;
and

0

80

ongoing arrangements to monitor compliance
with, and to evaluate the
continuing efficacy of, internal control.

 T h e requirements of defense contractingestablish an especially high
f
internal control
standard against which the adequacyof systems c ~ contractor
must be measured. It is not prudent or possiblc to detail specific systems of
control adequate to the needs of every defense contractor. This must
be
determined in light of each contractor's circumstmces, including
its size,
operating habits, nature of business, range of products and
services, and
geographica1,dispersion of operations. Contractors should undertake careful
review of the adequacyof their specific internal controlsystems, evaluate
potential improvements, and determine what steps
w i l l provide greater
assurance of compliancewith contracting requircments.
Information developed by the Commission illdic~tes that corporate controls
could be greatly improved in at least three fundatnental areas:
0

development of codesof conduct addressitlg problems and procedures
incident to defense procurement;
promulgation and enforcement of more
ef'fkctive internal control systems
to ensure compliancewith those codes and the establishnlent of internal
auditing capacity to monitor, among othel things, compliancewith codes
and theefficacy o f the controlsystems; ant 1
establishment of a more effective oversight o f ' the entire process by an
independent committee, suchas an outsidc audit committee of the board
of directors.

A. ContractorStandards

of Conduct

Defense contractors must promulgate and
enforce codes of conduct that
address their unique problems.
Written standards of conduct arenecessary I O establish an environment in
which a contractor's goals and its administrative atld accounting controls become
understood and functional.A well-drafted code i.; 11lot-ethan a mere ditectiont o
employees on what is and what is not permissible conduct, although that
is
certainly a major function of the code. Itcan provide ;I conceptual f'ramework
for both management and employeest o understand h o w company policy
interrelates with other applicable policies. I t can artic.ulate principles 0 1 1 the basis
of which decisions should be made when governlnent regulations
fail to address
issues specifically. In the broad sense,a code o f ' ( onduct should be designed t o

81

 preserve or enhance a contractor's reputation for integrity. In our
Znteriwl Report
we recommended:
Defense contractors must promulgate ant1 Lkjlantly enforce codes of
ethics thataddresstheunique
problems a n c t procedures incident to
defense procurement. They musl also tievcllop and implement inlernal
controls to monitor these codes of ethics
1 sensitive aspects of contract
compliance.
a

n

(

This recommendation was based, in part. o n a study undertaken for the
Commission by the Ethics Resource Center, In(.." 111 surveying the practicesof a
representative sampling of major defense contractors, the Center inquired
about the:
0

processes for establishing, and the form and contentof, corporate
policies and procedures for ensuringetllical conduct in dealings with the
federal government andwith subc(~ntr-ac.tol.s, suppliers, and others;

0

means contractors use for conmlunicatirlgt twse policies and procedures;

0

internal systems contractors use for mo1litoring and enforcing their
policies and procedures; and

0

internal contractor systems for adjudicating and punishingviolations.

T h e Center's survey documents more widt,spread adoption of business
codes of conduct among defense firms than among American companies
generally, and suggestsrelatively greater apprc.c.iatior1by contractors of the risks
of unethical conduct and the
value of explicit stantiards of behavior.T h e survey
also indicates, however, that contractors' c o d c s often fail to address areas in
o f ' misconduct is highest. For
government contracting where the incidence
example, matters such as cost allocation, quality control, bidding and billing
practices, defective pricing, materials suhstitlltion, contract negotiation, the
monitoring of contract compliance, and the hiringof' former Defense
Department personnel wereexplicitly addressed i n only a third of the codes of
those defense contractors surveyed.
6Ethics Resource Center, Inc., a non-profit organizationlocated in Washington, D.C., has
done extensive study ofissues involved in ethical corporate governance.T h e results of its work
for the Commission are set forth in Final
a
Report and Kvcomnwndations on Voluntary Corporate
Policies, Practices, and Procedures Relating to Ethical Buyine.s.>Conduct (Feb. 18, 1 YS6), which is
included as AppendixN to this Final Report of the Comnlission.

82

 T h e r e a r e also inadequacies in the communication and enforcement of
standards of conduct. For example, only half the contractors with written codes
indicated that they distributecopies to all employet:s, and many reported that
distribution was limited to only senior management. Only half the codes
specified procedures for employeesto follow in rqwrting possible misconduct,
and barely one in five provided procedures for pr(3tecting employees who bring
unethical practices to light. Finally, although trends indicate an increasing
attention by upper management to business ethics ~ssues, the
survey documents
the need for much better mechanisms at highest corporatelevels to monitor
and enforce compliance.Too often industry regarcts promulgation of a code o f
conduct as the end product and doesnot aggressivcxly pursue its enforcement,.
The Commission makes the following specific recommendations
regarding codes of conduct for defense contractors:

1. Each contractor should review its internal policies and procedures to
determine whether, if followed, they are sufficient to ensure performance that
complies with the special requirements of government contracting.
Contractors should adopt-or revise, ifthey have adopted-written standards
of ethical business conduct to assure that they reasonably address, among
other matters, thespecial requirements of defense contracting. Such standards
of conduct should include:
a. procedures for employees to report apparentmisconduct directly
to senior management or, where appropriate, toa member of the committee of
outside directors-ideally the audit committee-that has responsibility for
oversight of ethical business conduct; and
b. procedures for protecting employees who report instances of
apparent misconduct.

2. To ensure utmost proprietyin their relations with government
personnel, contractor standards of ethical business conduct should seekto
foster compliance by employees of DoD with ethical requirements incident to
federal service. To this end, contractor codes should address real or apparent
conflicts of interest that might arise in conducting negotiations for future
employment with employees of DoD and in hiring or assigning
responsibilities to formerDoD officials. Codes should include, for example,
existing statutory reporting requirements that may be applicable to former
DoD officials in a contractor’s employ.

83

 3. Each contractor must develop instructional systems to ensure that its
internal policies and procedures are clearly articulated and
understood by all
corporate personnel. It should distribute copies of its standardsof ethical
business conduct to all employees at least annually and to new employees
when hired. Review of standards and typicalbusiness situations that require
ethical judgments should be a regular partof an employee's work experience
and performance evaluations.
4. Contractors must establish systems to monitor compliance with
corporate standardsof conduct and to evaluate thecontinuing efficacy of their
internal controls, including:
a. organizational arrangements (and, as necessary, subsequent
adjustments) and procedural structures that
ensure that contractorpersonnel
receive appropriate supervision; and
b. development of appropriate internalcontrols to ensure
compliance with their establishedpolicies and procedures.

5. Each major contractorshould vest its independent audit committeconsisting entirely of nonemployee members of its boardof directors-with
responsibility to oversee corporate systems for monitoring and enforcing
compliance with corporate standards of conduct. Where it is not feasibleto
establish such a committee, as where the contractor is not a corporation, a
suitable alternative mechanismshould be developed. To advise and assist it in
the exercise of its oversight function, the committee should be entitled to
retain independent legal counsel, outside auditors, or otherexpert advisers at
corporate expense. Outside auditors, reportingdirectly to the audit
committee or an alternative mechanism, should periodically evaluateand
report whether contractor systems of internal controls provide reasonable
assurance that the contractoris complyingwith federal procurement laws and
regulations generally, and with corporate standards
of conduct in particular.
T h e Commission believes that .sulf-govern,mce is the most prmnising
It follows that each
mechanism to foster improved contract complianc~.
contractor must individually initiate, develol), implement, and enforce those
crir ical t o contract compliance,
elements of corporate governance that are
including a proper code of conduct.
T h e extellt of'each contractor's efforts in
doing so will reflect the level of reputation f ' o t integrity it intends t o set for itself.

84

 B. Contractor Internal Auditing
Contractors mustdevelop and implement internal controls to ensure
compliance with corporate standardsof conduct and the requirements of
defense contracting.
Contractors must also establish an internal auditcapacity to monitor
whether the controls they have put
in place are effective. Internal auditing will
help ensure contractor compliancewith internd procedures, standardsof‘
conduct, and contractual requirements. Anintc*rnalaudit organization, to serve
these purposes, must be staffed with competent personnel able to operate with
the requisite degree of independence and candor.
Use of internal auditing to review adherence t o procurement requirements
involves a significant broadening of the traditional applicationof this
monitoring device. In developing new auditing processes to review these issues,
contractors must considerwhich areas aremost sensitive and in need of audit
review, as well as which auditing devices will be most cost-effective and efficient.
Recommendations in our Interim Report ent.ouraging increased selfgovernance were based, in part, on an internet] audit study completed for the
Commission by the certified public accounting tirnl of‘Peat, Marwick, Mitchell 8c
Co.’ Over 2 1 0 business units-aggregating a1)proximately $90 billion in DoD
fiscal year 1985 outlays for negotiated contracts-participated in the survey.
T h e survey was designed to ascertain, amongother things, the following:
0

the extent towhich internal auditing, in addition to its traditional
applications, has been utilized to monitor defense contract compliance;

0

the scope and coverage of such expanded auditing efforts;

0

the effectiveness and usefulness of such internal auditing; and

0

the extentto which, in view of recent de~reloprnents, contractors intend
to
expand their internal auditcapability o 1 correrage.

’Peat, Marwick’s Report on Survey of Defense Contractors’ Internal Audit Processes (Feb. 1986) is
included as Appendix 0 to this Final Report of the Commission. For survey purposes, “internal
auditing” was considered to include any regular,cyclical. or special examination conducted by o r
on behalf of a company’s management
to assess the extent of compliance with the company’s
established policies, procedures, and systemsof internal controls. This excluded normal
supervisory efforts aswell as financial audits performed by a company’s independent
accountants.

85

 T h e survey indicates thatmost contractors have internal audit functions of
some kind and that many companies
recently 11ac.t.expanded internal auditing
to cover more aspects of their governmentcont ract operations. But it also
provides compelling evidence of a need for
det'ense industry generally to
upgrade the capabilities and broaden themission o f ' its internal auditors.
Among other important resultsof the survey are thefollowing:
Znternal Auditing Capacity. Over one-quarter o f ' the business units surveyed
had no formal internal audit function; over two-thirds had no such function at
their operatinglevels. Seven in ten indicated th,it they rely for audit coverage,in
whole or in part, on the workof independent ,Iccourltants and on government
auditors. Given the added degreeof effort needed t o monitor government
contract work, internal auditstaffs are toosrnall: 58 percent ofthebusiness units
surveyed had fewer than 10 internal auditors, ; i n t i almost two-thirds reported
that their internal audit staffs do not completef.ul1
a cycle of auditable areas
within a three-year period.
Scope of Internal Auditing. To serve the purpose of improving compliance
with federal procurement laws, internal auditiI1g must address avariety o f '
practices specific to government contracts. E f tective audits of such practices
require more penetrating evaluations perforn~rd more frequently than do
traditional financial audits. T h e survey sholvs t h a t , despite recent efforts by
contractors to broaden internal auditing efforts,sensitive issues of contract
compliance are not reviewed adequately. T h e w include key areas of labor cost
distribution and controls, material management, estimating practices,
cost
allowability, accuracy of costingand reporting,m c l contract administration.
Competence of Internal Audit Stajj: Internal audit staffs-where they existgenerally have a satisfactory professional background. They need substantially
more formal training, however,in areas critical t o compliance with federal
procurement law, including Cost Accounting Standards, Federal Acquisition
Regulation, Truth in Negotiations Act, and fraud detection. Approximately a
quarter of the units surveyed provide trainingI I I none o f ' these areas, antiless
than a quarter provide trainingi n all ofthern.
Effectiveness of I n t r m a l Auditing. Internal auditors must operatewith
independence and objectivity.8 By this measure, the basic design of contractors'
internal audit programs appears tobe good. rIlle sun'ey nonetheless indicates

T h e independence of internal auditors dependsi n part upon the organizational levels t o
which they communicate resultsof their work anti t o wh1ct1the). report administ~-atively. 'l'hrse
are indicative of internal auditors' ability t o act indepcndcxntlv o f individuals responsil)lef o r the
functions being audited. 'l'heobjectivity of internal autiltors m a y 1,ejudged from findings and
recommendations made in their reports. the frankness of ~ v t ~ i c c;tn
tl
depend in in1port;lnt part

86

 several areas of concern. Audit design may be inadequate because
its scope is
determined largely by management requests. Management may not i n all cases
be assuming properresponsibility or taking necc.ssary action for follow-up on
problems identified through internal auditing. Moreover, thewide availability to
government personnel of internal audit repolt s a r i d supporting work papers
may not be conduciveto auditors’ candorand objectivity concerning the
performance of the individuals responsible forI ]le f’unctions being audited.
We conclude that defense contractors havefailed t o take advantage of
assistance that internal auditorsmay provide t o marlagement responsible for the
design and function ofsystems of internal contr o I o f ‘ government contracting.
Identifying important elements of such
systems , t n d remedying their weaknesses
and deficiencies should be matters of the highest priority t o all defense
contractors. This demands ongoing study and e\duation
of a sort that cannot be
h y government auditors.9
provided by either a company’s outside auditors or
Defense contractors mustindividually develop and implement better
systems of internal controls to ensure compliance with contractual
To assist in this effort and to
commitments and procurement standards.
monitor its success, we recommend contractors take thefollowing steps:

1. Establish internalauditing of compliance with government contracting
procedures, corporate standards of conduct, and other requirements. Such
auditing should review actualcompliance as well as theeffectiveness of
internal control systems.

2. Design systems of internal control to ensure that they cover, among

a7

 other things, compliance with the contractor’s standardsof ethical business
conduct.

3. Establish internalaudit staffs sufficient in numbers, professional
background, andtraining to the volume, nature, andcomplexity of the
company’s government contracts business.
4. Establish sufficient direct reporting channels from internal auditors to
the independent audit committee of the contractor’s boardof directors to
assure the independence and objectivity of the audit function. Auditors
should not report to any managementofficial with direct responsibility for the
systems, practices, or transactionsthat are the subjectof an audit. Such
structure assures frank reporting of and prompt action on internal audit
results. To encourage and preserve the vitality of such an internal auditing
and reporting process, DoD should develop appropriate guidelines heavily
circumscribing the use of investigative subpoenas to compel disclosure of
contractor internalauditing materials.
Major contractor improvements i n recomnlcndetl self-governance will, no
doubt, require considerable effort overseveral vears. Making these
improvements will also require greater involvc~mentby contractors’ boards of
directors andtop management. The importancc~
(It. the executive leadership role
in achieving a proper control environment cannot be overemphasized. ‘I’he
necessary initiatives must be instituted by i n d l l s t l . ) . , not government. Defense
contractors must take the steps described abo\.c o r run the risk of action b y
government, in response to public expectations, that may be both excessive and
unavailing. We share the concernsof the Ethics Kesource Center that:
intensive federal regulation has not only increased costs and lead-time,
but may have actually decreased the sense o f ’ individual and corporate
responsibility for the quality of products ant1 services delivered t o the
federal government. The standard of ethical business conduct seems LO
havebecome regulatory compliance,rat her than responsibledecision
making. In areas where these are not coincicler~talor where regulations
do not dictate conduct, the management conscience may fail. The sense
o f moral agency and ethicalresponsibility ~ n a ?he overridden b y the
“gamesmanship” attitude fostered b y regulatory ,Idver-sarialisln.
Whatever actionsthe present Administration o r the Congress may take t o
improve the effectiveness of federal regulations m c l oversight activities,
serious attention must be paid to the inhercwt limitations and possible

88

 counter-productivity of an approach that is almost entirely a matter o f
external policing.1°
T h e process by which a contractor recognizes and distinguishes
responsibility for compliance froma mere facade of compliance is
self-governance, and essential elements of that process are implementation and
of conduct and internal auditing
systems.
enforcement of proper codes
Vigorous programs of the sort recommended hold far greater potential for
ensuring the integrity of defense contracting than does increased government
oversight. Successful self-policing by defense ( ontractors has the considerable
advantage of making such oversight more
efficient and effective. For very
practical reasons, therefore, governmentmus1 exert its authority to oversee the
defense acquisition process in ways calculated to hasten the progress of
responsible companies toward improved self-governance. Our study ofDoD
practices-with respect to administering its owm standards of ethical conduct,
of
coordinating its own auditing and oversight efforts, and employing the range
possible sanctions against contractor miscontiuct-suggests various areas for
improvement. These we address below.

1
p

'Osee Ethics Resource Center, Final Report and Recommendations, Appendix N .

L

b,

c

a9

 111. Government Accountability: DoD
Auditing and Oversight, Standardsof
Conduct, and Enforcement

T

o ensure accountability forits own operations and programs, the federal
government has systems of administrative ,111~1accounting control that are
analogous to those in the private sector. Theitct'l'ectiveness is dependent on
comparable factors suchas organization, po1icic.s and procedures, and
personnel. Our study persuades us that,mucll ;IS Lvitll defense industry, Dol)
must exert substantially better internal controlti' it is t o iInpto\.e the
effectiveness of its programs for contract auditing and oversight, employee
standards of conduct, andcivil and administratlve enforcement.

A. Department of Defense Auditing and Oversight
Oversight of defense contractors mustbe better coordinated among DoD
agencies and Congress. Guidelines must be developed to remove undesirable
duplication of official effort and, when appropriate,to encourage sharing of
contractor databy audit agencies. The new Under Secretary of Defense
(Acquisition) should establish appropriate overall contract audit policy.
As stated in ourInterim Rrport, there is a11 ullq1lestioned need for broadand
effective administrative oversight of defense
a a ~ u i s i t i o nDoD
.
monitors the
performance of defense contractors and the
irltcbgritv o f contractor compliance
by a number of processes, including investigations, inspections, and specialpurpose reviews conducted by personnel of:

90

0

the Defense Contract Administration Services (DCAS) o f the Defense
Logistics Agency (DLA);

0

the Services' respective plant representative offices (PRO), audit agencies,
investigative services, and inspectors gencral;

0

the Defense Contract AuditAgency (DCc\,4);

0

the Defense Criminal Investigative Servicx;

 0

the DOL)Office of the Inspector General ( O I G ) ; and

0

DoD's many procurement and contract nlarlagement organizations.

Overseeing these efforts are the General Atwunting
Office (GAO),
committees and subcornrnittees of Congress, an(l congressional staff.
T h e oversight apparatus within DoD has e\ olved over time. As various
organizations and activities have been establishetl, their jurisdictions, functions,
and responsibilities have emerged, often without clear delineation. Today, a
distinction may be drawn between criminalinvestigative ;md internal auditing
responsibility-largely consolidated under the, OI(~-and procurement and
exercised by the IICAS and
contract administrative responsibility-traditi~Il~~ll~,
cognizant Service PKO with the advice and assislarl'ce o f ' DCAA auditors.
Proper coordination and econonly of oversight c.f'fi)r-t ha\re proven particularly
difficult to achieve inview of the multiplicity o f ' 1)ol) organizations involved.
At the outset of our work we were awareo f concerns that control over DoD
contract oversight efforts had degenerated. Most notably, the Senate Armed
Services Committee has expressed theview that contract auditing requires
sound overall coordination to promoteefficiency and minimize duplication of
effort." In December 1985, the OIG reported the results of a survey conducted
by that office to determine whethereffective coordination exists among various
DoD organizations involved in the oversightof c-ontractor operationsin order
to avoid unnecessary duplicative efforts." T h c survey examined 25 separate
DoD reviews conducted in 1984 at two major contractor locations. Fourteen of
these 25 oversight exercises-involving altogether some 13 different DoD
organizations, the GAO, and a primecontractor-were found to involve
elements of needless duplication. The Inspector General concluded, "Unless
specific actions are taken to address the problenlsof coordination, unnecessary
duplicative reviews (of this sort) arelikely to corltinue."
O u r own work confirms the InspectorGent:ral's conclusion. I t also
underscores the enormityof the problem.
In December 1983, we engaged the certified public accounting firm of'
Arthur Andersen& Co. to study DoD contract auditing and oversight, including

91

 its overall design and any duplicationof effort,’“ Arthur Andersen
8c Co.
reviewed pertinent laws and regulations, conslilted with responsible DoD
officials, and made nationwidefield visits to asclertain the recent experience of
some 15 major defense contractors that togetherdo substantial work for each of
the Services and for theDLA. Figure 1 reflects the principal findings and
recommendations that emerged from this study. I t is noteworthy that Arthur
Andersen 8c Co. and the OIG found identical problems of a systemic nature
among DoD contract oversight organizations:
0

Their effortslack advance planning ant1 coordination.

0

Their respective responsibilities are ill-(lefiI1ed.

0

They are unwilling to rely on each other’s work.

0

They are reluctant to share information.

Arthur Andersen 8c Co. concluded that “duplicationin the oversight
process is extensive. Changes areclearly required t o enhance efficiency and
reduce costs to both contractors and the gover~ment.” (Emphasis added.)
In ourview, necessary changes are notlikt.ly t o be accomplished, however,
without first consolidating the authority to make ;m<limplement contract audit
policy in a senior DoDofficial.
For these purposes, we recommend thefollowing:

1. Among his other responsibilities, the new Under Secretary of Defense
(Acquisition)should:
a. oversee DoD-wide establishment of contract audit policy,
particularly policy for audits conducted in supportof procurement and
contract administration;
b. except for criminal investigations and DoD internal audits,
supervise establishment of policyfor all DoD oversight of defensecontractors,
including oversight performedby procurement and contract management
organizations; and
c. recognize established GAO and professional auditing standards.
lSThe full reportof Arthur Andersen & Co.’s work -Study of Government Audit and Other
Oversight Activities Relating to Defense Contractors (Feb. 25, 1986)-is included as Appendix P to
this Final Report.

92

 Figure I
ARTHUR ANDERSEN & C O .
STUDY OF GOVERNMENT OVERSIGHT ACTIVITIES
PRINCIPAL PROBLEMS IDENTIFIED
INDISCRIMINATE APPROACH B Y DoD
PERVASIVELACK OF COORDINATION
0Rc;ANIZATIONS
AMONG DoD ORGANIZATIONS
* Nature, timing, and extent of audit and
* Reluctant to rely on each other’swork
oversight shows inadequate attention to
* Unwilling to share information
* Deficient in advance planning
-contractors’ past performance
* Inconsistent in interpreting
-results of prior and ongoingreviews
-contract and other requirements
-relative costs
and
benefits
-results of audits and reviews
* Respective responsibilities poorly
ERODING
AUTHORITY OF ADMINISTRATIVE
defined
OFFICERS
CONTRACTING
(ACOs)
-e.g., increased DCAA involvement in
* DoD Directive 7640.2 (Dec. 29, 1982)
limits ACO authority to resolve audit
non-financial areas
recommendations
* Not observing DoD regulations designed
to ensure coordination of audit
and
* ACO no longer functioning as
government’s “team leader”
oversight
* Organizations possess no centralized
* Indecision, delays, unnecessary and
costly disputes
coordinating authority

RECOMMENDATIONS AND COMMENTS
REAFFIRM AUTHORITY OF ACO
* To function as DoD’s team leader in all
dealings with contractor
* Responsible for
-determining final overhead rates
-coordinating all DoD auditing and
other oversight at contractor location
* Supported by DCAA in advisory capacity
-reevaluate DoD Directive 7640.2

REEVALUATE AND CLARIFYRESPECTIVE
AUDIT AND OVERSIGHT RESPONSIBILITIES
* For example, those of contract
administrative organizations versus
DCAA in the areas of
--operational auditing
-compensation and insurance reviews
* More generally, to improve planning,
organization, and control

IMPROVE DAY-TO-DAY WORKING
RELATIONSHIPS
* Organizations should rely on each
other’s work
* Share data base of contractor information
ADHERE TO REGULATORY PRINCIPLES THAT
PROMOTEEFFICIENCY
* Audit and oversight plans should reflect
appropriate consideration of
-contractors’ past performance
-effectiveness of their internal control
systems
-results of prior and ongoing reviews
-relative costs and benefits

 2. To optimize the use of available oversight resourcesby eliminating
undesirable duplication of official effort, contract audit policy shouldbe
designed to:
a. delineate clearly respective responsibilitiesand jurisdictions of
DoD oversight organizations;
b. develop guidelinesand mechanisms for DoD oversight
otherwise to rely more extensively
organizations to share contractor data and
upon each other’s work; and
c. improve audit strategies for the conduct, scope, and frequency of
contract auditing. These strategies should reflect due consideration for
contractors’ past performance, the
proven effectiveness oftheir internal
control systems, the results of prior and ongoing reviews conducted by DoD
organizations and by contractors themselves, and relative costs and benefits.

B. Department of Defense Standards of Conduct
DoD should vigorously administer current ethics regulations for military
and civilian personnel to assure that its employees comply with the samehigh
standards expected of contractor personnel. This effort should include
development of specific ethics guidanceand specialized training programs
concerning matters of particular concern to DoD acquisition personnel,
including post-government relationships with defense contractors.
An extensive body of law and regulation exists t o prevent conHicts between
personal interest and public duty of current ant1 fi>rrner uniformed personnel
and civilian employees of DoD. These laws and regulations:
impose financial disclosure reporting ohllgatiorls o n tlroad categories of
DoD personnel, including extremely detailed reportingby the most
senior officials;
describe standards of behavior for all Dol) persomel, including the
general requirement that they avoid an\’ (.it-cumstance, whethero r n o t
expressly prohibited, that might createthe “appearance” of impropriety;
broadly penalize conduct b y DoD or o t h c . 1 - tkderal employees that could
involve personal enrichment in connectionwith ongoing official duty,
including bribes and gratuities, the
so-called private supplementation of
federal salaries, representation of‘ private parties in matters o f f‘ederal
concern, and official acts that affect pel s o d o r family finances or the
financial interests of a prospective privatt. etllployer; and

94

 0

restrict in various ways what former f(de~-al employees generally, and
DoD personnel specifically, may do upon leaving government service.
Figure 2 summarizes current post-ern~~lovnle~lt
ctisqualifications and
certain related statutory provisions.

of'current and former DoD
Standards thus established for the cor1011ct
acquisition personnel seek to maintain an envir~ontnenti n which Doll's internal
fiscal and managerial controls can work.
Like codes o f conduct adopted by
private contractors, they help protect the integrity and promote the
efficiency of
the contracting process, minimize
conflicts of'i~lterest, and assure thc putdic that
defense contractingis managed effectively ant1 tlollestly.
T h e Commission conducted acar-ef'ul r e \ ' ~ t wo f ' the xiequacy ofDoLI's
ethics programs for nditary andcivilian acqui4tiorl personnel.l 4 Several facts
prompted this review. In defense acquisition, . I S throughout the governrnent,
there is a substantial incidence of federal employee involvernent in reported
cases of fraud and otherunlawful conduct. hl;tnv cases have involved bribery or
other criminal activity by relatively low-level p~~rctlasing
officials at military
procurement facilities, and others have involvcd gratuities for senior personnel.
Such official misconduct in theacquisition systvrn is (loubly destructive: it
subverts operations of DoD and defense industry,and corrodes public
confidence i n governrnent anti business get1er~dIy.I t is critical i n defense
management to establish and maintain an en\.irot~ment where
official s ~ a n d a r d s
of conduct are well understood, broadly obser\.,ed. and
vigorously enforced. We
believe that significant improvements arerequire(!.
O u r study indicates, for example,that-mr~cll as is the case with the defense
industry-DoD's published conduct regulatiot1s do not provide timely or
effective guidance to personnel engagedin thc. acquisition process. 1)oD
Directive 5500.7, Standards o f ' Contluct, has r i o t been updated since 1977 o r
revised to reflect such subsequent legal de\wlop~ncntsas passage of' the Ethics in
Government Act of' 1978. E\.en i n its current \ersiotl, Directive 5500.7 provides
only general ethical guidance to personnelm t l components throughout D o I ) .
N o comparable directive provides morespecif tc guiclance t o all of IIoD's
acquisition personnel.
Nor does any system exist to ensure that a l l Dol) acquisition personnel
receive, on a periodicbasis, a prescribed minirtlu111of'ethics training specifically

1 4 0 ~public
r
meeting of May .i, 1986, was devoted excll1sively t o testimony o n this sul?ject.
As part of o u r review of relevant laws and administrative pr;l(:tices, we received an extensive
briefing and detailed conclusions and1-ecornmendations fro111 the Office of the Inspector
General.

 related to theacquisition function. Just as artlong defense contractors,
considerable disparity exists in the efforts that DoD acquisition organizations
expend in this area. An effective program o t ‘ instruction and compliance
concerning ethics matters, including post-employment disqualifications and
reporting, should be established and implenlented. To d o s o will require
sustained leadership throughout DoD and ;I commitment of greater personnel
and administrative resources.15
In ourInterim Rrport,we thus expressed the generalview that the important
challenge for defense managementlies in inlproving compliance with existing
ethical standards, not in defining new or more stringent standards.We
nonetheless also have reviewed the substarlceof current laws and regulations
from two distinct points of view: first, for their effect on recruitmentof capable
senior-level personnel to run the acquisition system; and second, for their
adequacy to protect the integrity of that system from perceived dangers posed
by the so-called revolving door phenomeno~l. The
“revolving door” refers, in
this context, to the movement ofDoD
a acquisition employee into ;I position with
a private company for whose government contracts h e has or had sonlt‘ official
responsibility.
Both our Interim Report and ourReport o r 1 Lkf.frnsrAcqui.sition emphasize the
importance of improving the government’s
.thility t o attract and retain the
highly qualified people needed for effecti1.e senior management of defense
acquisition. We agree with the Presidential Appointee Project o f the National
Academy of Public Administration that ethic.s regulations:
have assumed a very important role in rhe a p p o i n t m e n t p r o c e s s . T h e i r
impact is mixed. In some ways, theselaus have brought genuine benefits
t o the A m e r i c a n people by e l i m i n a t i n g b l a t a n t p o t e n t i a l c o n f l i c t s of
i n t e r e s t a n d e n h a n c i n g o p p o r t u n i t i e s f ’ o r - the identification and prosecution of those who would violate the public.
trust. 011 t h e other hatld, these
~ ~ l l t to
’ , \vucruit prusidunchanges have been costly: costly to thu ~ o ~ l / l ~ ~ ~ l t tuhility
tial appointees, costly to the relations betwreetl the news media and public

15Atthe Commission’s May 5, 1986, meeting, DoD’s General Counsel reviewed plans,
pursuant to the President’s April 1986 directive, f o r improved administration of current ethics
regulations for DoD personnel, as recommended in o u r lntvrirn Rrport. We support this effort. I t
should, we believe, focus in important part on the necd for specialized guidance and training
of
DoD acquisition personnel. It should also seek t o establish better mutual understanding
between, and promote complementary efforts to atldress the respective ethical concerns
of,
government and industry.

96

 officials, and costly in financial sacrifices
dedicated public officials.16

l o

a number o f ' honest and

O u r examination of the substance ofcurrrant ethics regulations underscores
an important truth: ethical standards areonly as easy t o observe, administer,
and enforce as they are certain in scope, simp](,i n concept, and clearin
application. Undue complexity and vagueness-for example, that we believe
characterizes current financial disclosure reporting requirements-serve no
legitimate public purpose. Either can transform ethical standards from matters
put at risk the reputation of
of principle to mere traps for the unwary, anti
anyone who enters orleaves a responsible posit i o n i n government.
Figure 2 outlines established criminal statutory restrictions on what federal
employees and retired military officers may or nay not d o once they have left
government. Actions of officials still in federal service have been restricted to
exclude matters inwhich they, or prospective private employers with whom they
are negotiating, have a financial interest. 'I'hese statutes should be enforced
more vigorously, and their import madeclear 1 0 DoD employees far more
effectively, than is now done.
Figure 2 also outlines the one current criminal statute,Public Law 99-145,
concerning for whom defense acquisition officials may work after they haveleft
DoD. This new provision, and comparable measures now pending in Congress,
significantly depart from prior law in attenlptillg t o define as criminal conduct
certain post-government employment p u s e . ' I ' h e y do so on a highly selective
basis-applying only to personnel involved in the acquisition process, and only
to such personnel as are employed
by DoD. More significantly, they pose serious
problems of definition, neversatisfactorily resolved i r l statutory form,
concerning precisely which DoD personnel should be covered and precisely
lead t o the employment
what sort of exposure to a contractor should
prohibition. In practice, these definitions arevery difficult to work out sensibly
and fairly. This is reflected i n the confusion concerning theapplicability of
Congress' one current venture into restricting post-government employment
per
se, Public Law 99-145. T h e highly uncertain impact o f ' these new anti proposed
statutes, and the understandable desire of
law-,tbicling individuals to avoid even
the remote chance of a criminalviolation, may well prompt talented people not
to work forDoD in the first place or to leave orlce such restrictions appear
imminent.
'6Leadership inJeopardy: The Fraying of the Presidentid .4~pointmunt.s.System (Final Keport of' the
Presidential Appointee Project), November 1985, at 1 3 (c.mphasis added).

97

 Figure 2
THE REVOLVING DOOR: CURRENT POST-EMPLOYMENT
DISQUALIFICATIONS A N D CERTAIN RELATED PROVISIONS
STA TU TE
1 8 U.S.C. 207W

P R O VISIONS
Permanently bans representation to the government of any person on m y
”particular matter involving a specilic party” in which a former Executive
Branch employee “participatecj personally and substantially” while in
government.*

18 U.S.C. 207(b)(i)

Bans fortwo years representatic~nto the government of any person on any
particular matter over which former Executive Branch employee
exercised ”official responsibilitv” while in government.*

18 U.S.C. 207(b)(ii)

Bans for two years representation by a former ”senior employee” of
Executive Branch, through his ,’personal presence at anyformal or
informal appearance” before the. government, of a n y person on any
particular matter in which suck, former employee personally and
substantially participated whik in government.’

18 U.S.C. 207(c)

Bans for one year representation by a former “senior employee” of
Executive Branch of any person to his former agency on any particular
matter before or of substantial rnterest to that agency.*

18 U.S.C. 208

Prohibits an employee of Execiitive Branch from participating ”personally
and substantially” as such in ally “particular matter” in which any person
with whom he is “negotiating’ or has any “arrangement“ concerning
post-government employment has J financial interest.*

18 U.S.C. 281

Prohibits retired military officers from representing any person in the sale
of anything to the government through their former department.*
Bans for two years following rrstirement participation by military officers
in prosecution of claims againd t h c United States involving their former
department.*

1 8 U.S.C. 283

37 U.S.C. 801

10 U.S.C. 2397

10 U.S.C. 2397a

P.L. 99-1 45,
99 Stat. 693

Prohibits payment of compensation to military officers engaged, within
three years after retirement, ” i n selling, or contracting or negotiating to
sell, supplies or war materials’ to [>ODor other agencies.
Requires reporting by certain military personnel and civilian officials of
DoD of employment by defense contractors occurring within two years
prior or subsequent to governrnent service.t
Requires reporting by militar:, personnel and civilian officials having
procurement responsibilities i l l DoD of “contacts” regarding postgovernment employment opportunitieswith certain defense contract0rs.t
Prohibits a “Presidential appointee” who acts as “primary
a
government
representative” in the “negoti;ltion” or “settlement” of a contract with a
defense contractor to accept,within two years thereafter, employment
from that contractor.*

*Violation punishable by fine and/or imprisonment.
tviolation subject to administrative penalty in amount up to $1 0,000.

98

 While mindful of thecritical need to recruit and retain capable acquisition
personnel, we do not minimize the importanceo f ' upholding the real and
apparent integrity of the acquisition process. ( ) u t - recommendations seek to
achieve vigorous enforcement of ethical requiretncxts
and steadfast attention t o
ethics programs and trainingby government m c l industry alike. We believe that
our recommendations, if fully implemented, w o u l d go much further toward
improving the ethical environment of defense
acquisition than would any
legislative proposal. Had such administrative ef'f'l)rts txen undertaken by DoD
heretofore, the adequacy of the existing
legislative scheme would be far more
evident.
Public Law 99- 145, and the additional revol\,ing-door restrictionsnow
proposed, in part reflect a legitimate dissatisfaction w i t h individual enforcement
of existing DoD standards of conduct. Theyalso reflect a widespread concern
that opportunities for post-government employrnentwith defense contractors
may seem to tempt acquisition officials to favo~ improperly those contractors
over whose affairs they exercise authority.We do n o t dismiss this concern.
Acquisition officials must scrupulously avoid an\' action that might create even
the appearance ofgiving preferential treatment to any contractor or losing
complete independence or impartiality of actionExisting standards o f ' conduct
demand nothing less. T h e real challenge,we believe, is t o establish and maintain
an ethical environment for defenseacquisition t11at applies this principle across
the board. Thiswill not be accomplished througll piecemeallegislation that
subjects special classes of government employees t o imprecise standards,
unpredictable restrictions on future conduct,
anc 1 harsh criminal penalties.
Instead, the revolving-door concern musttx. addressed where it originates,
must
in the relations of DoD and the defense industry. (hmplementary efforts
be undertaken by DoD and defense industry to tlefine appropriate and highly
specific limitations in the area of post-governmellt ernployment relationships.
These limitations should notbe legislated but instead should be articulated
through complementary prohibitionsin both government and industry
o f putative employers (i.e.,
standards of conduct, for the clear guidance
contractors) and employees (i.e., formerDoD ofticials) alike. This exercise
would reinforce a healthy, ongoingclialogue t)et\veerl industry and government.
Appropriate voluntary disqualifications by pri\ul e employers and prospective
employees could and should become an acceptecl aspect of'the of'ficial and
professional responsibilities assumed by those who work in anti contract with
DoD. Were statutory requirements to report em1)Ioyment with defense
contractors properly observed and administered, DoD, industry, and the public
could monitor thesuccess of the approachwe re( onltnencl. In ttlis way, Dol) and
defense industry could assume leadershiproles l o r rhe public and priwte

99

 sectors, and set a standard thatothers-notably
departments-should emulate.

Congress and other Executive

For these purposes, we recommend thefollowing:

1. DoD standardsof conduct directives should be developed and
periodically reviewed and updated, to provide clear, complete, and timely
guidance:
a. to all components and employees, on ethical issues and standards
of general concern and applicability within DoD; and
b. to all acquisition organizations andpersonnel, on ethical issues and
standards of particular concern to DoD acquisition process.

2. The acquisition standards of conduct directive should address, among
other matters, specific conflict-of-interestand otherconcerns that arise in the
course of official dealings, employment negotiations, and post-government
employment relationships with defense contractors. With respect to the last
category, the Secretaryof Defense should develop norms concerning the
specific personnel classification, type of official responsibility, level of
individual discretion or authority, and nature of personal contact that, taken
together, should disqualify a former acquisition official from employment
with a given contractor for a specified period after government service. These
recommended norms, observance of which should be monitored through
existing statutory reporting requirements, would establish minimum
standards toguide both acquisition officials and defense industry.*
*Commentby Herbert Stein:
Although I do not disagree with what the ( ;onmission says about the
“revolving door,” I wish to add the following comment:
Department of Defenseofficials whose position i n the acquisition process
enables them to affect substantially the interests o f ‘ particular contracting
companies should not be employedby those companies for a period, suchas two
years, after leaving the Department, except
in special cases where the national
security clearly dictates otherwise. This principle is not now adequately
recognized in the standards of proper conduc,ti n the Department or among
defense contractors. For the Department, the Secretary should
clearly state the
principle, define the categories ofofficials to which it applies and identify the
individual officers and their contractor-relatiorIships covered. Undoubtedly the
line between covered and uncovered relationships will be difficult to draw, but

100

 3. DoD should vigorously administer and enforce ethics requirements for
all employees, and commit necessarypersonnel and administrativeresources
to ensure that relevant standards of conduct are effectively communicated,
well understood, and carefully observed. This is especially important for all
acquisition personnel, to whom copies of relevant standards should be
distributed at least annually. Review ofsuch standards should be an important
part of all regular orientation programsfor new acquisition employees,
internal training anddevelopment programs, and performanceevaluations.

C. Civil and Administrative Enforcement
Suspension and debarmentshould be applied onlyto protect thepublic
interest wherea contractor is found to lack “present responsibility” to
contract with the federal government. TheFederal Acquisition Regulation
should be amended to provide more precise criteria for applying these
sanctions and, in particular, determining present responsibility.
Specific measuresshould be taken to make civil enforcement of laws
governing defense acquisition still more effective.
Failure to establish internal disciplines necessary to responsible selfgovernance subjects a defense contractor to variety
a
o f governmental
enforcement remedies. Thus, the government
nlay seek relief against a
contractor for breach of contract and, even
i n tlre absence of technical breaches,
criminal and civil sanctions for contractor and contractor-employee misconduct.
O u r Interim Report recommended “continued, aggressive enforcementof
federal civil and criminal law governing defense acquisition.” Thiswas
predicated on theview that such enforcement “punishes and deters misconduct
by the few, vindicates the vast majority who deal w i t h the government lawfully,
Comment cont’d.

it will be better to draw the line imperfectly than eitherto ignore the revolving
door problem or to leave officials and contractors in a state of uncertainty.
t o employment that violates
Contractors’ codes of conduct should include a I)ar
this principle.
I believe that if the standardsof permissible employment areclearly
defined bothofficials and contractors will voluntarily abideby them. In line with
the Commission’s desire to foster an atmospherct of trust among the
Department, contractors and the public,I would much prefer to see the
problem handled inthis voluntary way. But if experience shows that reliance on
voluntary observance of the principle is inadequate, legislative remedies should
be considered.

101

 and recoups losses to the Treasury.” In
this section we discuss noncriminal
sanctions by which the government can protectits interests.
Unlike criminal or other punitive measures, suspension and debarment are
DoD may “solicit offers from, award contracts
sanctions intended to ensure that
to, and consent to subcontracts with responsible umt?-actononly.”17T h e Federal
Acquisition Regulation sets forth specific circumstances in which suspension
(disqualification pending the completion ofinvestigation o r legal proceedings)
or debarment (disqualification for a specific period o f time) may be applied.lH
Imposed in appropriate circumstances, thesesarlctions seek to serve “a public
interest for the Government’s protection” rathc.t thanto provide for increased
punishment for wrongdoing.1g
While suspension and debarment are indispensable
tools in assuring that
DoD not contractwith those lacking present responsibility,
they nevertheless are
severe remedies that should be applied only i n accordance with their stated
purpose andlegal standards. Membersof the dc.fense contracting industryclaim
that neither the purpose nor the standards have been observed, and that the
threat of imposition of the sanctions has become the government’s primary
negotiating weapon in criminal prosecutionsto force contractorst o enter guilty
pleas to avoid suspension or debarment.2n There
is concern that DoD has
improperly concluded that thefact of‘a criminal indictment of a contractor
or a
management employee is an “automatic” ground for suspension, without
sufficient regard for corrective actions already taken.21 Such claimed abuses are
said not only to constitute arbitrary denials of protected personal and property

I’Federal Acquisition Regulation (hereinafter FAR) ?“ 9.402(a) (emphasis added).
18FAR §$ 9.406-1, 9.407-1(b). Following imposition of the sanction, ;I contractor and its
subcontractors may continue to perform work on ongoinq contracts, but the contractor
is
rendered ineligible for future awards during the period
o f suspension or debarment.
19FAR3 9.402(b).
*orhere is little doubt that suspension or ctebarment, wlwrher properly or improperly
imposed, can be devastatingto a contractor wholly or he,~vily engaged
in the defense industry.
While such contractors may suffer but survive heavy civil and c-riminal penalties, they may not
survive a lengthy suspensionor debarment.Not intended a n t 1 not imposed as punitive
measures, suspension or debarmentmay nevertheless be the most severe sanction confronting a
wayward contractor.
2 L I tis generally conceded by suspending/debarrirlg authorities that suspension occurs upon
issuance of an indictment, and that the contractor
is therc.after af‘forded opportunityt o show
Any one of‘the threeMilitary Services and
cause why the suspension should not be terminated.
the DefenseLogistics Agency (DLA) may suspendo r ciehar :I cx)ntractor, and the other Services
and the DLA will honor the sanction.

102

 rights, but also to eliminate as the criteria for sllspension, the measure of a
contractor’s “present” responsibility.22
Whatever the merit of defense industry
claims, it is clear that nowhereis the
attitude of mutual mistrust between DoD a n d the defense industry more in
evidence than in DoD’s exercise of its powers of‘suspension and debarment.
In recent years there has been a marked i~~crease
in the number ofactions
taken to suspend or debar individual or corporate contractors from entering
into new contracts with DoD. In 1975 there were 57 suspensions and
debarments by DoD; in 1980 there were78. In I985 there were 652 suspensions
and debarments, a greater than eightfold increase
in just five years. This
increase is due in part to a more determinedaltd aggressive enforcement stance
by DoD and a greater willingness to apply the sanctions.
Today’s problems can be addressedby developing a sounderbasis for both
government and industry to carry o u t their respective functions. By working
together with more cooperation and dedication
to performance andless
mistrust and suspicion, a renewed commitment to excellence can be made.

1 . Circumstances in Which a Contractor May Be Suspended or
Debarred
a. Current Rules f o r Suspension
Suspension of a contractoris in the nature of a preliminary remedy
available to the government beforefull development of thefacts. It should be
imposed “on the basis of adequate evidence . . . when it has been determined
that immediate action is necessary to protect the government’s intere~t.”‘~
Adequate evidence is defined as “information sufficient to support the
reasonable belief that a particularact o r omission has
22While contractor conduct thatjustifies a criminal
irlciictment may be przma facie evidence of
irresponsibility, such conduct often precedes an
indictmcmt i n the contracting industryby two o r
more years.T h e bare fact of an indictment may thus he ; I n improper measureof the contractor’s
time of indictment. During the period
“present responsibility” should suspension occur at the
following the misconduct allegedin the indictment, the contractormay have replaced employees
guilty of wrongdoing, corrected faulty systems, made restitution, better communicated and
implemented a corporate code of conduct, improved internal auditing practices, and otherwise
taken actions demonstratingits current responsibility. A n “automatic” suspension does not
afford opportunity for such proof, andmay defeat incelltives for implementing more
responsible self-governance.
23FAR5 9.407-1(b).
24FAR5 9.403.

103

 T h e Federal Acquisition Regulation sets forth particular conditionsin
which suspension may be applied. A contractormay be suspended, for example,
upon “adequate evidence”of the commission of a fraud or criminal offensein
the procurement process, theviolation of federal or state antitrust statutes, the
commission of variousother criminal offenses, and the commission of any other
offense showing “lack of business integrity or business honesty” that “directly
affects” the contractor’s presentresponsibility. Indictment for any of these
delineated actions constitutes adequate evidence for suspension. A contractor
of‘ present
may also be suspended for any other cause that shows an absence
re~ponsibility.~~

b. Current Rules f o r Debarment
Regulations governing debarment provide that the responsible
official
“may debar” a contractor if it has been convicted for any offense listed above
that may provide a basis for suspension. T h e regulations further state that the
n o t require debarment. “[Tlhe
existence of one of the described causes does
seriousness of the contractor’sacts or omissions and any mitigating factors
should be considered in making any debarment

25FAR5 9.407-2, Causes for Suspension, provides:
(a) The suspending official may suspend a contractor suspected, upon adequate evidence,
of( 1 ) Commission of a fraud or a criminal offense 111 connection with (i) obtaining,(ii)
attempting to obtain, or (iii) performing a public contract or subcontract;
(2) Violation of Federal or State antitrust statutes I elating to the submission of offers;
(3) Commission of embezzlement, theft, forgery,hibery, falsification or destruction o f
records, making false statements, or receiving stolen pr1)perty;or
(4) Commission of any other offense indicating a I x - k of business integrityor business
honesty that seriously and directly affects the present rcymnsibility of Government
contractor or subcontractor.
(b) Indictment forany of the causes in paragraph (a)above constitutes adequate evidence
for suspension.
(c) The suspending official may upon adequate evidenc.e alsosuspend a contractor forany
other cause of so serious or compelling a nature that it affects the present responsibility of a
Government contractor or subcontractor.
e6FAR0 9.406-1 (a).

1 04

 2. Improvements in Regulations Governing Conditions Under Which a
Contractor May Be Suspended or Debarred
Existing regulations canbe improved in crucial respects by providing
criteria for government officials making present responsibility determinations.

a. Determinationof Present Responsibility
The requirement thatall suspension/debarment decisions be based on a
present responsibility determination should be moreclearly set forth by
amendment of particular provisions of the Federal Acquisition Regulation.
Such amended provisions should include an
explicit requirement that
suspension and debarment mustbe related to a 1;tck of present responsibility
before either sanction is applied. For example, adequate evidence of the
occurrence of a criminal offense by a contractor orits employee should not
necessarily result in suspension. Nor shouldconviction for a prior offense be the
sole predicate for debarment. Basis for imposition of suspension or debarment
is lacking unless the suspending or debarring authority determines that
pre~wntproblems within the
conditions causing the criminal misconduct are
company. Provisions referred to above setting forth particular conditions in
which a contractor may be suspendedor debarred should be amended to clarify
that such a conditionis a sufficient basis only if it cat1 be linked to alack of
contractor present respon~ibility.~’

b. Criteria for Present Responsibility
Administration of suspension/debarment wouldalso be improved if
regulations were amended to include specific criteria t o be considered in
determining whether a contractor
is “presently responsible.” Such criteria are
not now set forth in the regulations. T h e following are recommended for
consideration as proper criteria:
27Thecited regulatory provision (FAR 9.407-2(b)), statlng that indictment for any of the
listed causes “constitutes adequate evidence
of suspension,” is particularly troublesome.Cliven
’
the time-consuming nature of litigation, indictments are
invariably based on prior misconduct.
T h e events causing an indictment generally precede an indictment
by one or more years. Thus,
where an agency suspends a contractor on the
sole basis of an indictment, it applies this sanction
without regard to the requirement that suspension should be predicated lack
on of present
responsibility. Such administrative actioninvolves an abdication o f the suspending authority’s
obligation under current law. This provision of the Federal Acquisition Regulation -stating
that indictment constitutes adequate evidence
-should be rrexamined.

105

 0

The natureof integrity programs,if any, currently being implementedby
the contractor. The debarring/suspending authority should be
particularly interested in the extent of thcl contractor’s affirmative efforts
of conduc t that address contract
to implement ethical standards
performance andsystems ofinternal conl rolst o monitor compliance with
those standards.

0

The contractor’s reputation for probity o n recent procurements with
DoD and other federal agencies.
The reputation of the contractor’s management and directorsin recent
circumstances as persons of good character and integrity.

0

T h e extent to which misconduct is symptomatic of basic systemic
problems within the corporation as opposed to isolated, aberrational
corporate behavior.

0

The nature and extentof voluntary disclosure and cooperation offered
by the contractor in identifying and investigating the misconduct.

0

T h e sufficiency of remedial measures takento eliminate the causes of the
misconduct.

c. Determination of Public Interest

Before suspending or debarring a contractor the responsible
official must
the
determine, in addition to present responsibility, whether such action serves
“public interest.” To an extent, consideration
of public interest is subsumed in
the determination whether the contractoris currently responsible. Some factors
affecting public interest are, however, distinct from those affecting present
responsibility and should be considered separately. Except where a contractor’s
misconduct endangers life or property, in which case the government’s interest
is clearly indicated, the Federal Acquisition Regulation should be amended to
mandate review of the effect a proposed suspensioddebarment might have on
the ability of DoD and other government agencies to obtain needed goods or
services. .
In making the public interest determination, the suspending or debarring
agency should consult with agencies both within and outside DoD. T h e decision
that suspension or debarmentwill serve the public interest requires a careful

106

 balancing of public needs against any potential harm that might occur from
continued dealings with the contractor.

d. Cursory Suspension of Contractors
The current practiceof “automatic” suspension of contractors following
indictment on contract fraud should be reconsidercd
by DoD with a view that it
be more discriminating and take into account
all cir currlstances of a particular
situation. In ourInterim Rrport we stated, “Suspension and Debarment should
not be imposedsolely as a result of an indictmentor conviction predicated upon
former (not ongoing) conduct. . . .”
A device that has been usedby a military department in lieu of “automatic”
suspension is the so-called “shock and alarm” letter. Such a letter brings sharply
to the attention of the executive aofdefense firm PIoD’s cause for concern of
wrongdoing, and the executive is urged to take inlmediate corrective action.
What distinguishes the “shock and alarm”
techniquc: is that it does not carrywith
it the formal and immediate sanction of suspension.I t provides the contractor
an opportunity to put
its own house in order beforc suspension becomes
imperative.
e. Scope of Suspension or Debarment Orders

Once a determinationis made to suspendor dctjar a contractor, theMilitary
Service or DLA must determine the appropriate scope of the order.
The
government may elect to suspend or debar a partictllar division or similar
organizational componentof the contractor, a nurnt,er of‘divisions or
organizational components, or the entire corporate structure which
of
the
contractor is a part.
An overly broad suspension or debarmentof a contractor involved in
numerous procurements can denyDoD important sources of supply and cause
economic and commercial harmto the contractor. On the other hand, an
inappropriately narrow application of these sancl i o n s can lead to continued
government dealings with irresponsible parties.
Current regulationsgive the responsible agencywide authority to tailor the
scope of a suspension or debarment orderwithout providing guidance about
how the agency should exerciseits discretion. Suspension applies to“all divisions
or other organizational elements of the contractor,
unless the suspension
decision is limited by its terms to specific divisions, organizational elements o r

 commodities.”28 Similarly, “debarment constitutes debarment all
of divisions or
other organizational elements of the contractor, unless the debarment decision
is limited by its terms to specific divisions, orgarlizational elements or
comm~dities.”~~
Given the significance and difficulty of these determinations, responsible
officials should have morespecific guidance in (,onsidering the scopeof possible
suspension or debarmentactions. T h e Federal ;4cquisition Regulation should
mandate review of thefollowing criteria:
0

the extent towhich the misconduct was confined to a particular
organizational unit and the autonomy of that unit;

0

the extent of knowledge corporate management and directors had of the
relevant misconduct;

0

the extentto which sanctions must be im1)osed to provide minimum
protection of thepublic interest; and

0

other effects that could occurif organizational units other than that
within which the misconduct occurred arc suspended or debarred.

Suspending and debarring authorities should craft application of these
sanctions as narrowly as possible to exclude onlv those organizational units that
threaten the integrity of the procurement
procc’ss.

f . Independence of Determinations
The government,because of broad discretionary powers entailedin
declaring contractors ineligible for awards, carriesa heavy burden. It must
affirmatively seek to avoid arbitrary action.Dol) should ensure that
opportunities for abuse are reducedby insulating decisionmakers in the
suspension and debarment process from untoward pressure from within or
without DoD. Present policies d o not provide sufficient insulation forofficials
involved in the process.

2sFAR 9 9.407-1(~).
29FAR 9 9.406-1(b).

108

 g. Procedures Guiding Suspension and Debarment Within Components oj‘DoD
Under current regulations, theseveral suspending and debarring
authorities aregiven discretion to “establish procedures” governing suspension
and debarment “decision-making” processes.30This discretion has resulted in
each of the authorized agencies developing different and somewhat inconsistent
procedures. The Inspector General made the
following pertinent observations:
Each suspension/debarment authority within DoD has developed its own
method ofprocessingsuspension and debarment determinations and
implementing suspension and debarment procedurcs regarding the provision of notice tocontractors and the conduct of‘hearing procedures.
For example, if a contractor requests and is provided a hearing on a
debarment matter in DLA, the General Counsel, as the suspension/debarment authority, conducts the hearings. Argument and testimony is
directly presented to the suspensioddebarmentautllority, who can assess
the credibility of witnessesand can examine all evidence.In the Air Force,
suspension and debarment hearings are held beforc. the Debarment and
Suspension Review Board, which in turn makes recomrnendations to the
suspensioddebarment authority.g’
Given the severity of suspension and debarment, the Commissionbelieves
that uniform procedures should guide the
review and decision-making process
in each of the agencies. It
is, for example very important that debarringofficials
in each agency should beof a similar stature and that hearing procedures
should be comparable. In the absence of uniformity, inconsistent and unfair
results may follow. T h e Secretary of Defense should ensure that uniform
policies govern each agency’s decision-making process and the Federal
Acquisition Regulation should be amended toso requlr-e.

h. Alternative CivilRemedies
The government should expandits use of and more aggressively pursue
civil remedies. To make civil enforcement more effective, ourInterim Report
recommended specific measures that included the passageo f Administration

’‘FAR §§ 9.406-3(b)(l ) , 9.407-3(b)(1).

”Office of the Inspector General,DoD, Review of Suspension m d Debarment Activities withinthe
Department of Defense, at 86-87 (May 1984).

109

 proposals to amend the Civil False Claims Act dnd t o establish administrative
adjudication of small civil false claims cases.
It is suggested that thoseofficials charged u ith administration of
suspension/debarment -in particular instances when the proprietyof
imposition of suspension is questionable - gi\ e greater consideration to civil
sanctions as a complete remedy. For such an alternative to be effective, DoD
must have ayailable to it expanded civil remedies for recoveryof assets.
Expansion of traditional civil money judgmentsis a much needed resource, and
by endorsing legislation still pending in the Congress-i.e., the Program Fraud
Civil Remedies Act -the Commission has sought t o encourage the grant of
sweeping new administrative powers to levy fines more effectively against
individuals and corporations engagedin wrongcloing of a lesser nature.

3. Voluntary Disclosure of Irregularities
Contractors have a legal and moral obligation t o report to government
authorities misconduct discoveredin the process of self-review. 'The
Departments of Defense and Justice should jointly initiate a program
encouraging the voluntary disclosureof irregularities by contractors. Such
a program, if successful, could afford the goverllmenttimely notice of'
improprieties that otherwise might not be
availalde, and provide details of
known wrongdoing without the expense and cotnpulsion of'an adversarial
investigation.
A voluntary disclosure program will be effecxive if' there are inducements
that assure skeptical contractors they will not suffer greater sanctionsby coming
forward. Private companies that fail to disclose should not be rewarded by the
fortuitous inability of government investigatorst o make a timely discovery of an
irregularity. Nor should contractors benefit that come forward only under
compulsion of imminentdiscovery.
Guidelines considered by DoD in a voluntary disclosure program should
include:

110

0

T h e timing of the disclosurewith respect to the contractor's initial
awareness of the irregularity and the proximity of government oversight
action.

0

T h e completeness, accuracy, and truthfulness of the disclosure,as well as
other factors supporting voluntariness.

0

Management levels at which the wrongdoing occurred and atwhich the
decision to disclose was made.

 0

Whether internal corporate procedures or standardsof conduct covered
the conduct of those involved i n the wrongdoing andin the disclosure
decision.

0

Whether there were in place internal auditing systems that, when
properly implemented, addressed the irregularity.

For these purposes, we recommendthe following:

1. The Federal Acquisition Regulation should be amended:
a. to state more clearly that a contractor may not be suspended or
debarred except when it is established that the contractor is not “presently
responsible,” and that suspension or debarment is in the “public interest”; and
b. to set out criteria to beconsidered in determining present
responsibility and public interest.

2. The Department of Defense should reconsider:
a. “automatic” suspensions of contractors following indictment on
charges of contract fraud;
b. suspending and debarring thewhole of a contractor organization
based on wrongdoing of a component part;
c. insulating its suspendingldebarringofficials from untoward
pressures; and
d. establishing uniform procedures to guide the review and
decision-making process ineach agency exercising suspension/debarment
authority.

3. DoD should giveserious consideration to:
a. greater use of broadened civil remedies in lieu of suspension,
when suspension isnot mandated; and
b. implementation of a voluntary disclosure program, andincentives
for making such disclosures.
4. Specific measures should be taken to makecivil enforcement of laws
governing defense acquisition still more effective. These include passage of
Administrationproposals to amend theCivil False Claims Act and
to establish
administrative adjudication of small, civil false claims cases. In appropriate
circumstances, officials charged with administrationof suspension/
debarment should consider application of civil monetary sanctions as a
complete remedy.
111

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PRESIDENT'S BLUE RIBBON COMMISSION
O N DEFENSE MANAGEMENT

David Packard, Chairman

I

Robert H. Barrow

Carla A . Hills

ilLe.2L)
Nicholas F. Brady

I

James L. Holloway, I l l

Louis W. Cabot
I

Frank C. Carlucci

Charles j . Pilliod, j r ,

William P. Clark

Brent Scowcroft 1

Barber B. Con'able, Jr.

Herbert Stein

(L+
Paul

F.

Gorman

I

R. James Woolsey

Ernest C. Arbuckle, ln Memoriam
113

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PRESIDENT’S BLUE RIBBONCOMMISSION
O N DEFENSE MANAGEMENT
Staff
Rhett B. Dawson, Director
Paul S. Stevens, Deputy Director and General Counsel
Robin Deck, Counselor for Legislative Affairs
Rebecca D. Paulk, Executive Secretary
Madeline C. Aldrich, Executive Assistant to the Chairman
Penny Chanin, Executive Assistant to the Director
Toney Stricklin, Staff Coordinator and Executive Assistantto the Director
PROFESSIONAL A N D TECHNICAL STAFF

Richard C. Morris
James G . Ling
Robert Steve Dotson
Andrew Hamilton
Mary F. Nugent
Jeanne Briguglio

Phillip L. Harrlngton
JamesJ . Lindenfelser
J o h n T. Kavan,lugh
Robert T. Marlow
Michelle S. Kalkowski
Donna N . Rivtllli

CONSULTANTS
PUBLICAFFAIRS
SENIOR

Vincent
Puritan0
Herbert
Jacques S. Gansler
J o h n C. Beckett

E. Hetu, Counselor
Alexis B. Allen

ADMINISTRATIVE STAFF

Peter R. O’Connor, Administrative Deputy
Juanita Berry
Mc(:arthy
Rosemary
Esther F. Evans
Miles E. Rounlree
Stephanie D. Johnson
David M. Hochbrueckner
Mary Hill

Patricia Stith
Ray S. Thompt*on,J r
lrvin A. Tull

TECHNICAL ADVISERS T O THE ACQUISITION TASK FORCE

E. Oran Brigham
Walter
Dale W. Church
Paul G. Kaminski
Barry
Roger Lewis

M. Locke
B i l l B. May
H . Whelm

115