Document Name: Department of Defense: Part 1 of 2
Date: 09/30/93
Owner: National Performance Review

Department of Defense

Accompanying Report of the
National Performance Review

Office of the Vice President

Washington, DC

September 1993

This accompanying report, prepared by the staff of
the National Performance Review (NPR), laid the
groundwork for the recommendations in the NPR report
_From Red Tape to Results: Creating a Government
that Works Better and Costs Less,_ released on
September 7, 1993. This report is based on the best
information available at that time. The specific
recommendations within these reports have been and
will continue to be given priority as part of the
FY95 Budget, legislative proposals, or other
administration initiatives, as appropriate.


Executive Summary..................................1

Department of Defense Reinvention Activities.......5

Restructuring the Ofc of the
Secretary of Defense..............................7

Bottom-Up Review..................................11

Acquisition Reform................................19

Recommendations and Actions

DOD01: Rewrite Policy Directives to Include
Better Guidance and Fewer

DOD02: Establish a Unified Budget for the
Department of Defense......................47

DOD03: Purchase Best Value Common Supplies and

DOD04: Outsource Non-Core Department of Defense

DOD05: Create Incentives for the Department of
Defense to Generate Revenues...............57

DOD06: Establish and Promote a
Productivity-Enhancing Capital Investment

DOD07: Create a Healthy and Safe Environment for
Department of Defense Activities...........63

DOD08: Establish a Defense Quality Workplace......67

DOD09: Maximize the Efficiency of DOD's Health
Care Operations............................71

DOD10: Give Department of Defense Installation
Commanders More Authority and
Responsibility Over Installation

DOD11: Reduce National Guard and Reserve Costs....83

DOD12: Streamline and Reorganize the U.S. Army
Corps of Engineers.........................87

Summary of Fiscal Impact..........................91


Accompanying Reports of the National Performance
Review 93


AFPD Air Force Policy Directive

BAQ Basic Allowance for Quarters

BRAC Base Realignment and Closure

CAS Cost Accounting Standards

CBO Congressional Budget Office

CDA Commercial Derivative Aircraft

CDE Commercial Derivative Engine

CID Commercial Item Description

CRAG Contractor Risk Assessment Guide

CSIS Center for Strategic and International

DAB Defense Acquisition Board

DCAA Defense Contract Audit Agency

DCMC Defense Contract Management Command

DFARS Defense Federal Acquisition Regulation

DLA Defense Logistics Agency

DLAPS DLA Publishing System

DOD Department of Defense

DOE Department of Energy

DPR Defense Performance Review

DPSC Defense Personnel Support Center

DSMC Defense Systems Management College

EC/EDI Electronic Commerce and Electronic Data

EDI Electronic Data Interchange

EPA Environmental Protection Agency

ESB Executive Steering Board

FAR Federal Acquisition Regulation

FSCATT Fire Support Combined Arms Tactical Trainer

FSU Former Soviet Union

FTE Full-time Equivalent

FYDP Future Year Defense Plan

GAO General Accounting Office

GSA General Services Administration

HQ USAF Headquarters, United States Air Force

ISA Interservice Support Agreement

JDAM Joint Direct Attack Munition

JPATS Joint Primary Aircraft Training System

NPR National Performance Review

OFPP Office of Federal Procurement Policy

OGE Office of Government Ethics

OMB Office of Management and Budget

OSD Office of the Secretary of Defense

PROCAS Process-Oriented Contract Administration

RCSS Reserve Compensation System Study

SAR Selected Acquisition Report

TINA Truth in Negotiation Act

TQM Total Quality Management

USUHS Uniformed Services University of the Health

Executive Summary

Congress established the War Department and the
Department of the Navy in 1789 to provide for the
common defense. In 1947, they were combined to form
the Department of Defense (DOD).

A cabinet agency, DOD is composed of three military
departments--Army, Navy, and Air Force--and 16
defense agencies. DOD is the nation's largest
employer: 1.9 million people serve on active duty in
the Army, Navy, Air Force, and Marine Corps. The
Department employs 1 million civilians, and an
additional 1.8 million citizens participate in the
National Guard and Reserves.

DOD's fiscal 1993 budget was $259.1 billion. That
amount was about 18 percent of the total 1993
federal budget, down from a Cold War high of 27
percent. By 1998, the Department will have 1.4
million people on active duty, and its budget will
have been cut by over 40 percent since 1985.

The end of the Cold War, the collapse of the Warsaw
Pact, the democratization of Eastern Europe, and the
demise of communist control in the former Soviet
Union have not changed the Department's basic
mission of protecting the United States. But these
dramatic changes do provide our nation an
opportunity to reinvent the Department of Defense.
The Department's reinvention efforts will make DOD
more responsive to the new challenges to U.S.
national security interests.

The global security environment is characterized by
four dangerous phenomena:

~ nuclear weapons and other weapons of mass

~ regional dangers, including large-scale
aggression, internal ethnic and religious
conflicts, and state-sponsored terrorism;

~ threats to democracy and reform, in the
former Soviet empire and elsewhere; and

~ economic uncertainties that threaten the
prosperity of Americans.

The Department's reinvention efforts are based on
two premises concerning national security strategy.
The first premise is that the administration and the
nation as a whole will place top priority on
revitalizing the American economy. The second
premise is that the United States will pursue a
strategy marked by engagement, partnership, and
prevention to secure and advance U.S. interests in
the post-Cold War world.

In its reinvention efforts, the department will
embrace the principles of the National Performance
Review to operate more effectively and at less cost,
and to be oriented toward results and performance.
Red tape will be slashed, market dynamics will
replace reliance on internal monopolies, and DOD's
practice of fostering a quality culture will be
re-energized by its senior leaders. The synergy
of these efforts will enhance DOD's record of
innovation and accomplishment despite the dramatic
downsizing now taking place.

DOD's first reinvention effort was the
restructuring of the Office of the Secretary of
Defense into five operational units to promote a
quality culture, streamline operations, build an
organization to pursue post-Cold War missions, and
undertake a new way of operating through teams. The
five operational units focus on the most important
building blocks: acquisition and technology;
personnel and readiness; comptroller/financial
management; command, control, communications and
intelligence; and policy.

The department also undertook a "Bottom-Up Review"
to reinvent itself in a creative and dynamic way in
response to the end of the Cold War. The review
encom-passed the formulation of strategy, force
structure, weapon system modernization, and the
reconfiguration of DOD's supporting infrastructure.
More infrastructure will be returned to productive,
private re-use, supported by President Clinton's
five-point revitalization plan, which includes:

~ job-centered property disposal that puts
local economic development first;

~ easy access to transition and redevelopment
help for workers and communities;

~ fast-track environmental cleanup;

~ larger economic development planning
grants; and

~ transition coordinators at major bases
slated for closure.

Real acquisition reform is another reinvention
keystone. Although DOD's acquisition system produces
the best weapons and support systems in the world,
this was achieved at great expense to the nation.
The current acquisition system was tailored to meet
Cold War dangers and for an industrial base that has
changed significantly since the system's inception.

DOD also undertook its own Defense Performance
Review (DPR). The DPR built on recent successes and
the principles of quality leadership and culture.
Seven reinvention prototypes were developed by teams
drawn from every part of the Department.

The first of the seven prototypes addresses the
steps needed to deploy a quality culture throughout
DOD. The second sets forth a process for reviewing
internal policy with a view toward eliminating
prescriptive process requirements and focusing on
performance metrics that will measure success. The
third and fourth prototypes focus on competitively
outsourcing non-core functions when doing so makes
operational and economic sense, and purchasing
best-value common services and supplies. The fifth
and sixth prototypes focus on defense bases as
installations of excellence, where commanders and
their people are empowered to manage and are held
accountable for results. The bases will demonstrate
national leadership in environmental cleanup,
conservation, compliance, and pollution prevention.

A final prototype involves a three-pronged approach
to expanding the use of technology in the DOD
medical system in order to manage and deliver the
highest quality health care at the lowest possible
price. First, commercially available off-the-shelf
systems will be quickly deployed into one of the 12
DOD medical regions. Second, diagnostic coding,
patient-level cost accounting, and a paperless
computerized medical record will be implemented for
use with the increasing proportion of health care
delivered on an outpatient orambulatory basis.
These practices could dramatically affect national
health care reform in terms of cost management. The
third prong involves use of telecommunications to
reach patients and their families at home in order
to resolve and manage health care problems before
they travel to hospitals or clinics. Medical
education, health promotion, personal computer
teleconferencing and consultation, and remote
patient monitoring are major areas of exploration.

The National Performance Review's DOD Agency Team
also offered the following initiatives: streamlining
the Army Corps of Engineers, creating incentives to
generate revenues, establishing a unified budget,
implementing a productivity-enhancing capital
investment fund, and reducing some National Guard
and Reserve costs.

The budget submitted by President Clinton included
substantial reductions in defense spending compared
to the plans of the Bush administration. These
reductions were made possible by the end of the Cold
War, the dissolution of the Soviet Union, and
changes in security dangers and challenges facing
the United States in the latter half of the 1990s.
For fiscal years 1994-1997, the reductions in
discretionary budget authority for national defense
total $87 billion. This includes reductions in the
Department of Energy associated with nuclear weapons
programs and $79 billion of reductions in the
Department of Defense ($61 billion of programmatic
changes as well as an $18 billion pay adjustment).
The recently completed bottom-up review examines in
detail the force structure, modernization, and
infrastructure needs of the Department of Defense
through fiscal year 1999, along with new
requirements including those for defense
reinvestment. When the future year defense plan
(FYDP) of the previous administration has been
revised to reflect the results of the Bottom-Up
Review and has been extended through fiscal year
1999 as a new Clinton FYDP, the budgetary savings
estimate will be even greater.

Department of Defense Reinvention Activities

In light of the post-Cold War environment and the
declining resources available for national defense,
the Department of Defense recognized the need for
reinvention and has already begun to incorporate the
principles of quality and excellence into its

DOD created its own team--the Defense Performance
Review (DPR)--to identify and build on recent
successful innovations and to review primary
management functions. The DPR's objective has been
to devise innovative ways to encourage more
businesslike practices and market-driven
efficiencies throughout the department. In addition
to the DPR, DOD has already undertaken several
departmental initiatives, summarized in the
following chapters. These include the restructuring
of the Office of the Secretary of Defense, the
Bottom-Up Review of military requirements, and a
renewed approach to acquisition reform.

The first initiative involves the complete
restructuring of the Office of the Secretary of
Defense. More than 20 divisions that formerly
operated autonomously were pared to five basic
parts. Under the new plan, four of the five Pentagon
divisions--Acquisition and Technology, Policy,
Comptroller, and Personnel and Readiness--will be
headed by under secretaries. The fifth will be
headed by the Assistant Secretary of Defense for
Command, Control, Communications and Intelligence.

The second reinvention effort, the Bottom-Up Review,
was a comprehensive assessment of all DOD programs.
It included a review of base force structure,
weapons systems, research and development programs,
and the support and infrastruc-ture in light of a
rapidly declining budget. The purpose of the review
was to ensure that each program is necessary and
consistent with the current national security

Through the acquisition reform program, the
Secretary of Defense has been identifying
improvements in DOD's acquisition practices. The DOD
Acquisition Law Advisory Panel's Section 800 Report,
submitted to the Senate and House Armed Services
Committees in January 1993, represents a first step
in defining a streamlined, sensible, and coherent
set of acquisition laws and regulations. The report
ensures necessary levels of congressional oversight
and control without significantly burdening the
process with unnecessary regulation. These actions,
if enacted, will have a major impact on DOD's
ability to follow smart businesslike practices and
outsource where it makes operational and economic
sense. DOD will also maximize the use of performance
specifications and commercial standards where
appropriate. This should lower the cost of products
and services and, in turn, make the marketplace more

The DPR Reinvention Team has taken account of these
programs and built on recent efforts in other areas
that are consistent with National Performance Review
(NPR) objectives. DOD established six task forces to
undertake a systematic and comprehensive look at
specific areas in which it could use the NPR
philosophy to implement change. Their efforts
resulted in the recommendations in this document.

Restructuring the Office of the Secretary of Defense

The Office of the Secretary of Defense (OSD) has
been restructured in order to streamline the
opeations of OSD, to build a new OSD to pursue
post-Cold War missions, and to undertake a new way
of operating through a team approach.

To streamline OSD, the number of units reporting
directly to the Secretary were reduced from about 20
offices to five primary operational units. The
five units are Acquisition and Technology; Personnel
and Readiness; the Comptroller; Command, Control,
Communications and Intelligence; and Policy (see
Table 1). In contrast to this streamlined OSD, the
organization of OSD under the Bush administration is
shown in Table 2. The Deputy Secretary will be
primarily responsible for the four resource-oriented
units, while the Secretary will be primarily
responsible and engaged in the policy unit, which
will drive the basic direction of DOD. This
streamlining has enabled the Secretary and upper DOD
management to concentrate more on effective policy
formulation rather than implementation.

To operate DOD according to its new post-Cold War
mission, new offices have been created to address
the four dangers that threaten our national
interests, which are identified in the discussion of
the Bottom-Up Review. Other offices have been
created to address other mission areas, such as a
Deputy Under Secretary of Environmental Security and
a Deputy Under Secretary for Acquisition Reform.

To implement the goal of bringing a team approach to
DOD management, the department has introduced
informal cross-cutting working groups, which
integrate policy across office and operational unit
lines and allow a larger segment of DOD to become
involved in the decisionmaking process. Each working
group is tailored to a particular task with
appropriate members drawn from OSD, the Joint Staff,
the Service staffs, the intelligence community, and
the commands in the field. These working groups
foster a team approach to management by encouraging
a high level of collaboration among its members.
They operate in a manner that values argument and
differences of opinion and encourages group members
to work together to accomplish specific tasks. A
prime example of this working group approach
has been the many groups that prepared key elements
of the Bottom-Up Review. The Bottom-Up Review was
guided by the Under Secretary for Acquisition and
Technology and the Assistant Secretary for Strategy,
Require-ments and Resources with the extensive
collaboration of members of the Joint Staff, the
service staffs, and OSD staff (see Table 3). Much of
the review's work was done in a series of working
groups that addressed key strategy, force structure,
modernization, and infrastructure issues.

The restructuring of OSD is helping to create a
more mission-oriented, better managed, and
responsive DOD by creating better horizontal
integration of OSD depart- ments; encouraging upper
management to focus more effectively on developing
appropriate policies; delegating authority to lower
levels of the organization; and fostering overall
excellence in management.

Tables are in Graphic format and will not convert

Table 1

Office of the Secretary of Defense in September 1993

Table 2

Office of the Secretary of Defense in September 1992

Table 3

Unprecedented Collaborative Effort in DOD Bottom-Up

Bottom-Up Review

The Bottom-Up Review was initiated shortly after
President Clinton took office. Its goal was to
recast the U.S. defense program in order to respond
in a creative and dynamic way to the end of the Cold
War. The review is a product of the collaborative
efforts of hundreds of individuals within the
Department of Defense and the intelligence
community. Its scope is unprecedented, encompassing
all major elements of U.S. defense planning: from
the formulation of strategy, to the construction of
force structure, to weapon system modernization, to
the reconfiguring of the DOD supporting

As Table 3 in the previous section shows, overall
oversight of the review was provided by a steering
group, chaired by the Under Secretary of Defense for
Acquisition and Technology and including
representatives from offices within the Office of
the Secretary of Defense, the Joint Staff, and the
Services. Task forces were established to examine
and report to the steering group on alternatives in
key program, policy, and infrastructure areas.
Membership was also drawn from experts within OSD,
the Joint Staff, and the Service staffs.

Through the spring and early summer of 1993, these
task forces performed their analyses and reported
their preliminary findings to the steering group. In
June, the Secretary of Defense began meeting with
senior defense officials and the Joint Chiefs of
Staff to review the options in key program and
policy areas. Special task forces were deployed when
needed to gather additional data or examine new
options. In other cases, the Secretary began making
preliminary decisions on the ideas submitted.

By August 1993, the Bottom-Up Review was largely
completed and the Secretary of Defense and the
Chairman of the Joint Chiefs of Staff briefed the
Principals Committee of the National Security
Council, the President, and the Vice President on
its results. The President then approved the
Secretary's recommendations and the results of the
Bottom-Up Review were publicly announced.

Analytic Process. The analytic process used by the
Bottom-Up Review is set out in Table 4. It reviewed
the new dangers and opportunities that lie ahead in
the post-Cold War world; constructed military
strategies to address these dangers and
opportunities; and developed the means to carry
out these strategies, such as a structure for DOD to
deal with the new dangers, weapons modernization,
and key foundations of defense.

Table 4

Post-Cold War World: Dangers and Opportunities (will
not format)

Because so many basic elements of the security
landscape have changed over the past four years, it
is essential that plans for the future defense
program be built on a fundamental reassessment of
future security needs.

The Bottom-Up Review identified dangers in the
global security environment that could affect U.S.
national security interests. The dangers can be
grouped into four broad categories:

~ dangers posed by nuclear weapons and other weapons
of mass destruction, including dangers associated
with the proliferation of these weapons throughout
the world as well as the threat posed by tens of
thousands of weapons still residing in the former
Soviet Union;

~ regional dangers, including large-scale
aggression, internal ethnic and religious
conflicts, and state-sponsored

~ dangers to democracy and reform efforts in the
former Soviet empire and elsewhere; and

~ economic dangers that threaten the prosperity of

DOD's strategy will take account of opportunities to
advance U.S. objectives and, over time, to shape the
international environment in favorable ways. For
example, the collapse of the Soviet empire has
created opportunities to bring a number of nations
into the democratic fold of states with values and
objectives that are largely shared. There are
opportunities to nurture this trend of democratic
expansion, to stabilize those democracies that
threaten to back-slide, and to develop partnerships
among those democratic states dedicated to the
pursuit of our common objectives and values.

Future Strategy. The Bottom-Up Review was based on
two basic premises concerning national security

~ first, that the administration and the nation as a
whole will place top priority on revitalizing the
American economy;

~ second, that to secure and advance its interests
in the post-Cold War world, the United States will
pursue a strategy marked by engagement,
partnership, and

Such a strategy is essential in an interdependent
world: no matter how powerful the United States is
as a nation, it is not possible to unilaterally
protect our people from the dangers outlined above.
Whether the danger is from nuclear proliferation,
regional instability, the reversal of reform in the
former Soviet empire, or unfair trade practices, the
dangers demand cooperative, multinational solutions.
Therefore, the only responsible U.S. strategy is one
that seeks to ensure U.S. influence over and
participation in the decisions of a wide and
growing range of other nations. The unparalleled
military capabilities of the United States and its
unique position as the preferred security
partner of important states in many regions will be
two key assets supporting this strategy.

The assessment of future security needs will help to
create a new sense of purpose for DOD following the
demise of the Soviet Union. It reemphasizes that an
organization should be driven more by a sense of
mission and less by rules and regulations. This new
strategy is part of the effort of upper DOD
management to focus on developing the right
policy for the times. This approach will enable
upper management to focus on international
leadership and leave detailed implementation to
those in the field.

The review examined several categories of activity
that will help support the new strategy. Among these
were force structure, modernization programs, new
initiatives, and defense foundations.

Force Structure. Four major factors have driven DOD
planning for future force structure. These missions

~ the need to be prepared to defeat major
regional aggression;

~ the need to station and deploy U.S. forces
overseas in peacetime;

~ the need for capabilities to help enforce
and keep the peace in situations of internal
conflict or chaos; and

~ the continuing need to deter, and selectively
defend against, attacks on U.S. territory with
weapons of mass destruction.

Defeating Regional Aggressors. The bulk of the
general purpose force structure is determined by the
need for the United States to field forces
sufficient to deter and, if necessary, to fight and
decisively defeat the forces of a regional power,
such as Iran, Iraq, or North Korea. The United
States will field forces that, in aggregate, can win
in two nearly simultaneous major regional conflicts.

This is prudent for two reasons. First, we need to
avoid a situation in which the United States, in
effect, makes an attack more likely by leaving
an opening for potential aggressors should our
engagement in a war in one region leave little or no
force available to respond in another. Second,
fielding forces sufficient to win two wars nearly
simultaneously provides a hedge against the
possibility that a future adversary--or coalition of
adversaries--might one day confront us with a
larger-than-expected threat. In this dynamic and
unpredictable post-Cold War world, we must maintain
military capabilities that are flexible and
sufficient to cope with unforeseen threats.

DOD analysis has helped determine what forces are
needed to fight and win future regional conflicts.
It has also shed light on questions of force
quality--readiness, force modernization, and support
enhancements needed to employ our forces most

Overseas Presence--U.S. Forces Abroad in Peacetime.
The second major driver of force planning is the
need to deploy American forces in peacetime in
regions important to our security. These force
deployments help to deter adventurism and coercion
by potentially hostile states as well as improve our
ability to respond effectively to crises or
aggression. Such deployments provide a rapid
response capability, by improving the ability of
U.S. and allied forces to operate effectively
together and by helping to ensure U.S. accessto the
facilities and logistics assets we would need.
Force planning enables deployment for both
short-notice and day-to-day operations in support of
U.S. interests around the world, from evacuating
embassies and providing disaster relief to enforcing
United Nations resolutions and intercepting
narcotics traffic.

Assuming that U.S. allies continue to carry a share
of the burden, forces can continue to be deployed in
Europe, East Asia, and the Middle East both because
the stability of these regions is of critical
importance to the United States and because our
military assets give us a stronger voice in the
affairs of these regions--not only military, but
political and economic as well. The demands of
overseas presence are also an important determinant
of our force structure, particularly with respect to
Navy and Marine forces.

Peace Enforcement and Intervention. To maintain
regional stability, U.S. forces must be prepared to
intervene on short notice in defense of important
U.S. interests and to participate in multilateral
peace enforcement and peacekeeping operations. U.S.
forces might be required as an initial response to
establish order, while other units would follow to
enforce compliance and allow reconstitution of
authority. The U.S. will also continue to be called
upon to render humanitarian assistance and disaster

The forces needed for these operations will, in
general, be drawn from general purpose units fielded
in preparation for winning two major regional
conflicts. Further, the U.S. possesses certain
specialized military assets that may be in great
demand during these missions. These include such
things as strategic lift, medical, psychological
operations, military police, civil affairs, and
other support units.

Strategic Deterrence. The United States must
continue to ensure that no enemy would find
advantage in attacking our territory or people with
weapons of mass destruction. Until such time as
democratic institutions and liberal values are
firmly established in Russia, our strategic nuclear
forces will be sized and shaped primarily by the
nature of the Russian arsenal. DOD plans to posture
forces for the long term in accordance with the
provisions of the START II Treaty, while retaining
the capability to expand or adjust should
circumstances warrant. Our strategic bomber force
will likewise be brought into compliance with START
II, while being sized for a growing role in
conventional power projection.

In the words of the President, our forces will
remain _the best equipped, best prepared in the
world._ To meet this standard, DOD will provide
sufficient resources to ensure that U.S. forces will
be ready to fight. Some of the key factors that will
ensure force readiness are outlined in Table 5. DOD
will also ensure that service in the U.S. armed
forces remains challenging, attractive, and
rewarding so that it can continue to attract and
retain high-quality people. Finally, DOD will
continue to fund research and development generously
and to focus investments on high-payoff technologies
to ensure that our forces retain the technological
edge that helped to bring victory in Operation
Desert Storm.

The changes discussed above will ensure that budget
allocations will be linked to outcomes or products
rather than inputs.

Table 5

Factors for Ensuring Force Readiness

The first priority is to ensure that forces are
ready to fight.

~ Ability to identify when readiness is decreasing
and prevent problems from occurring

~ Existence of clear and agreed force performance

~ Existence of reliable measurements to assess
whether standards are met

~ Ability to set policies and allocate resources to
meet standards and correct problems

~ Commitment to maintain adequate Operations and
Maintenance funding as budgets shrink

~ Establishment of a Task Force to provide an
independent assessment of force readiness

~ Establishment of an internal DOD panel co-chaired
by the Deputy Secretary of Defense and the Vice
Chairman of the Joint Chiefs of Staff to monitor

Linking future force structure planning to specific
missions also establishes a criterion by which to
measure the effectiveness of proposed force
structure options. By making the allocation of
resources to maintain superior training, equipment,
personnel, and technology a priority, DOD will also
ensure continued organizational excellence and that
U.S. forces will always be ready to fight.

Modernization Programs. The Bottom-Up Review
examined force structure needs in tandem with major
force modernization programs. Table 6 outlines the
key considerations for modernization programs. Each
program in the Bottom-Up Review was evaluated in
terms of its potential contribution to the military
capabilities that would be most needed in the
future, its projected costs relative to alternative
means for achieving needed capabilities, and
long-term needs for maintaining the industrial base
associated with each capability. Using such criteria
will ensure that budget allocations for
inputs, which in turn will better serve DOD's
overall mission. This will also guarantee that U.S.
forces will have the highest quality equipment in
the future.

New Initiatives. The new dangers and opportunities
of the post-Cold War world require the United States
to actively protect and enhance its national
security. DOD must not only prepare to deal with
threats to our security as they arise, but also to
prevent them from occurring. DOD must also seize
opportunities to shape the international environment
in ways favorable to U.S. interests. DOD's new
programs emphasize the funding of outcomes rather
than inputs by allocating resources on the basis of
how well they serve our national security interests
and overall departmental mission. These new policy
initiatives are:

~ Cooperative Threat Reduction to consolidate
safely, store, and dismantle the nuclear arsenal
of the former Soviet Union.

~ Counter-Proliferation Initiatives to further
impede the spread of weapons of mass destruction
and to improve our capabilities to prevent their
effective use.

~ Defense Partnership with the Former Soviet Union
(FSU), both to reduce the likelihood that
democratic political reform in the FSU might be
reversed and to hedge against the consequences of
such a reversal.

~ Global Cooperative Initiatives to improve U.S.
capabilities for peacekeeping, peace enforcement,
and humanitarian assistance/disaster relief, as
well as initiatives to promote the spread of
democracy, especially in the military
establishments of emerging democracies.

~ Defense Reinvestment and Economic Growth
Initiatives to encourage the freer flow of
technologies between the defenseand civil sectors,
and to assist individuals and communities making
the transition from defense-related employment.
This initiativewill also promote competition and
market solutions through its encouragement of
dual-use technologies and greater government
interaction with the private sector. In
addition, this initiative would offer incentives
to individuals and communities to encourage them
to make a more effective transition to civilian
employment through job training, separation pay,
and offering expertise to communities on defense
conversion and economic revitalization.

~ Environmental Security Initiatives to accelerate
the cleanup of DOD properties and to better ensure
that future defense activities are carried out in
accordance with sound environmental practices.
This will also promote the adoption of market
solutions and experimentation by encouraging
government to engage in technology partnerships to
stimulate innovative technology development,
promote dual-use technologies where appropriate,
and improve technology transfer. Incentives would
be offered to enable DOD to reduce its energy
consumption while compliance programs would be
improved to foster a more efficient and effective
compliance system.

While these initiatives will account for a
relatively modest share of the overall DOD budget,
they can yield long-term benefits far in excess of
their costs.

Table 6

Factors for Evaluating Modernization Needs

~ Driven by new dangers and new strategy
~ Industrial base
~ Prospects for technology
~ Acquisition reform
~ Reduced nuclear threat
~ International cooperation

The major modernization areas addressed in
the Bottom-Up Review:

~ theater air capabilities
~ reconnaissance and attack helicopters
~ ballistic missile defense
~ military satellite communications
~ attack submarines
~ space launch vehicles and infrastructure

Defense Foundations and Infrastructure
Reform. Another major determinant of the defense
budget is infrastructure: the facilities,
maintenance activities, logistics support,
schooling, systems acquisition, environmental
protection and restoration, and medical capabilities
needed to support DOD's worldwide operations.
Spending on infrastructure today accounts for
approximately $160 billion per year, or almost 60
percent of DOD's budget. Table 7 outlines some of
the major considerations in evaluating DOD's
infrastructure. Clearly, if these expenditures are
not reduced substantially, it will be impossible to
field and equip the military forces DOD needs to
support the ambitious strategy it envisions.

The Base Realignment and Closure (BRAC) process
represents a major element in cutting defense
infrastructure, but it is only a part of the story.
The Bottom-Up Review has identified opportunities
for efficiencies in other areas as well, including
maintenance and supply depots, research
laboratories, central medical activities, training
facilities, and force management.

Table 7

Issues Considered in Evaluating DOD's Infrastructure

~ Infrastructure accounts for 60 percent of
DOD's budget--the largest share is logistics.
~ Infrastructure cuts must occur to achieve
savings, given declining budgets and emphasis on
~ Some infrastructure cuts will be tied directly to
drawdown in forces. Others will require changes in
policy or law and be more difficult to implement.
~ Potential infrastructure savings of $20 billion to
$25 billion over five years are associated with
force structure changes, privatization,
consolidation, and better businesslike practices.
~ Implementation of infrastructure changes and cuts
will require continuing management attention.

Bottom-Up Review as Implementation of the
National Performance Review. Where the
recommendations of the Bottom-Up Review are fully
implemented, DOD will have created a system that
reemphasizes that DOD serves the interests of its
customers, the American people, by focusing on
mission orientation rather than bureaucratic
processes. The review effort will empower all
echelons of DOD through collaborative
decisionmaking. Upper management will focus on
policy formulation rather than
implementation--steering more and rowing less. The
review will promote experimentation, create
incentives for positive behavior rather than
dictating behavior, and search for market rather
than administrative solutions. Finally, the
Bottom-Up review will foster excellence throughout
DOD by emphasizing that quality is the first

Acquisition Reform

The new, post-Cold War era demands new thinking
about defense acquisition. The Clinton
administration believes the procurement system at
the Department of Defense must undergo fundamental
change to meet the security challenges of the 1990s.

The Cold War is over, but the United States faces
new threats: regional conflicts; proliferation of
nuclear weapons and other weapons of mass
destruction; risk to our economic well-being; and
the possible failure of democratic reform in the
former Soviet Bloc and elsewhere. The President and
the Secretary of Defense are committed to
maintaining a lean, high-tech, ready-to-fight
military force in a time when the threats are
changing and difficult to predict, and when defense
spending is being sharply cut. The Department of
Defense budget will be reduced by more than 41
percent by 1997 from its peak in 1985.

The Clinton administration is proposing the first
steps in a broad plan to remake the defense
acquisition system to meet these dangers. It will
allow DOD to run itself in a more businesslike
fashion. It will promote the merger of separate
production lines for defense and commercial
production, enabling companies to diversify while
maintaining their capability to meet the needs of
the Department of Defense. It will reduce paperwork
and promote off-the-shelf purchases.

These critical steps must be taken to support our
fighting forces and preserve an integrated
commercial and military industrial base that will
be competitive in the global marketplace. They will
enable the Department of Defense to achieve
necessary savings, retainhigh-quality weapons
systems, and preserve military readiness.

The Clinton administration is committed to
maintaining the best equipped, best trained, most
effective fighting force in the world. We will not
be able to do it unless we change the way we do

The Problem. The DOD acquisition system is a web of
laws and regulations adopted for laudable reasons.
The aim of the laws and regulations is to ensure
that competition is fair and the taxpayer is
protected from waste, fraud, and abuse. But the
rules have led to an overloaded system that is often
paralyzed and ineffectual. Even at its best, it is
cumbersome and complex. Due largely to the ability
and dedication of the people in the system, the Cold
War was won -- but at a significant price.

The existing DOD acquisition system is based on a
management system that creates a rule for every
contingency imaginable. It creates circumstances in
which no one person is accountable for an entire
process. Errors and delays dominate the system, and
the ability of any one person to improve the system
is small if not impossible.

The combined effect of the thousands of pages of
acquisition law and regulation is a confusing and
often needlessly slow and expensive system that the
nation can no longer afford. It turns away
innovative companies and makes it nearly impossible
to save tax dollars because the Department cannot
easily buy off-the-shelf commercial products. It
denies or slows DOD's access to readily available
state-of-the-art technologies. It serves as a
barrier to integration of the defense and commercial
industrial bases.

Neither DOD nor the nation can afford the luxury of
maintaining a unique defense industrial base. A 1991
report by the Center for Strategic and International
Studies said:

[It] results in higher prices to DOD (even when
lower-cost commercial alternatives exist for the
same requirements), loss of a broad domestic
production base that could be available to defense
for peacetime and surge demands, and lack of access
to com-mercial state-of-the-art technologies.
Additionally, the wall between engineers and
scientists engaged in commercial and military work
impedes the kind of shoulder-to-shoulder contact
that is the essence of technology transfer and that
is basic to achieving greater job stability and
growth opportunities for the U.S. work force.

DOD's acquisition process must become more flexible
and agile to respond to the rapidly changing
international climate of the 1990s. Because of its
complexity, a major overhaul of the acquisition
system cannot happen overnight. But it must begin.
It is not difficult to see why change is imperative.
During Operation Desert Storm, the U.S.-led
confrontation with Iraq, the Air Force found that it
needed to improve communication among its units. It
ordered 6,000 commercial radio receivers from
Motorola, whose products were uniquely suited to fit
its needs. Motorola, however, said it could not meet
the demands of the procurement rules. Specifically,
its commercial unit lacked the record-keeping
systems required to show the Pentagon that it was
getting the lowest available price. To circumvent
the problem, the Japanese bought the radios and
donated them to the Air Force.

The Solution. The post-Cold War era and the defense
downsizing of the 1990s mean that the DOD
acquisition system must undergo a fundamental,
top-to-bottom transformation. It is not enough to
fine-tune the existing system. Instead, it must be
fundamentally redesigned to enable the Department of
Defense to respond to the diverse demands of the
decade. Such changes will take time and must be
based on a thorough review of existing practices.

Our military contractors can compete successfully in
the global marketplace, but not if they must carry
the weight of all the special requirements placed on
them by the Department of Defense. Lifting this
burden will help companies remain viable as the
defense budget shrinks and will ensure the survival
of our domestic military industrial base. This will
help preserve high-paying jobs and encourage
innovative businesslike practices, and will make DOD
a better customer that companies will want to

Simplifying the acquisition process is the single
most important step DOD, the Clinton administration,
and Congress can take to save money and help defense
contractors compete successfully in today's
marketplace. Revamping the procurement system will
offer the twin benefits of increasing the efficiency
of the defense acquisition system and helping
companies operate simultaneously in the defense and
commercial sectors. This can only help improve
America's industrial competiveness.

DOD's new approach has three guiding principles:

1) Reduce acquisition costs through adoption of
businesslike processes characteristic of world-class
customers, and enable its suppliers to do the same.

2) Ensure that the United States maintains a strong,
globally competitive national industrial base that
can support DOD's needs.

3) Take full advantage of rapid technological
advances by streamlining procedures so that DOD
easily can purchase state-of-the-art commercial
products and other technology.

The Clinton administration is taking the first steps
toward acquisition reform by outlining a preliminary
set of proposals that will begin to simplify and
streamline the process.

Short-Term Plan of Action. The Department of
Defense has established a series of short-term
actions that take priority in its pursuit of
acquisition reform. The Department will set up
special Process Action Teams made up of federal
civilian employees and military personnel who
will evaluate problems and implement solutions.
This effort to identify problems and find solutions
will evolve as DOD works with the Vice President's
National Performance Review, the National Economic
Council, the Defense Reinvestment Assistance Task
Force, and the Defense Science Board Task Force on
Acquisition Streamlining, among others. The Deputy
Undersecretary of Defense for Acquisition Reform
will consult regularly with the Senior DOD
Acquisition Reform Steering Group.

Many of the DOD initiatives will require
coordination with and support from other agencies,
such as the Department of Labor and the Small
Business Administration. The Deputy Undersecretary
will work with the Office of Federal Procurement
Policy, the Office of Management and Budget, and
other federal agencies, including the National
Aeronautics and Space Administration, the General
Services Administration, and the Department of
Energy, among others.

What follows is a synopsis of activities DOD is
pursuing along with proposed solutions and
recommendations for implementation.

1. Simplified Acquisition Thresholds

A. Description of Current Program. A solicitation
for commercial ant bait, using large purchase
procedures, was 29 pages. The estimated price of the
purchase was above the simplified purchase procedure
of $25,000. It took 227 days to make this buy. The
actual award price, however, was $16,500. If small
purchase procedures had been used, almost 200 days
would have been saved.

A military hospital's supply officer requested a
re-supply of aspirin for his pharmacy. Several
offers were received. Supplier A's (a well-known
brand name producer) unit price was $3.98, the low
offer. DOD asked for the required small business
subcontracting plan. Supplier A refused to prepare
it even though it had many small business
subcontractors because it did not want to disturb
established long-term relation-ships with its many
suppliers and would never be asked for this in a
commercial transaction. Supplier A withdrew its
offer; the contract was awarded to the next low
offeror ($4.40 unit price), costing DOD
approximately 10.3 percent more--an additional
$107,000 over the life of the contract.

B. A Better Way. Promote a balance between an
efficient acquisition process and national social
policy by increasing the statutory threshold for
small purchases (Simplified Acquisition Threshold)
from $25,000 to $100,000. Remove the burden of most
government-unique clauses from purchases below the
threshold. Small businesses and small and
disadvantaged businesses will see increased
opportunities to do business with DOD because they
will be able to sell to the government under the
same rules they sell to their commercial customers,
and because purchases under $100,000 will be
reserved for small business. Electronic commerce
will ease access to the Defense market and at the
same time ensure enhanced notification of
procurement opportunities.

C. Background/Experience. Government agencies are
allowed to use simplified procedures if the contract
would amount to less than $25,000. Purchases under
the threshold are not subject to many of the laws
and regulations that apply to larger purchases.
These solicitations are far less complex--12 pages
on average. Large purchase solicitations, partly
because they must include a large number of required
clauses, are 29 pages on average.

The laws that impose various socio-economic
requirements upon the acquisition process lack a
uniform threshold (some apply at $2,500, others
apply at $10,000), and have not been updated to
reflect inflation or other trends. Because
socio-economic laws are scattered throughout various
statutes, including authorization and appropriation
bills, many companies are afraid they are not aware
of all the requirements. This discourages them from
competing for DOD contracts and subcontracts. As the
DOD Acquisition Law Advisory Panel, commonly known
as the Section 800 Panel, reported:

It seems unlikely that any company not already
engaged in the business of selling to the government
would actually be willing to spend the money
necessary to make the fundamental changes in the way
that it conducts its business in return for a sale
of $100,000 or less. This may be particularly true
of small businesses, which are the preferred
recipients of contracts of this size.

From the government's standpoint, overwhelming
administrative efforts and an inordinate amount of
time are required to solicit, award, and administer
contracts between $25,000 and $100,000. For example,
if a contract will exceed $25,000, DOD generally
must publish in the Commerce Business Daily an
announcement of the intent to award a contract, wait
15 days before it can issue a solicitation, and then
wait 30 more days before making an award. As a
result, the average lead-time for awards below
$25,000 is 26 days. Above $25,000 the average lead
time is 90 days for simple sealed bids and 210 days

for competitively negotiated contracts.

The DOD budget requires a reassessment of the role
and ability of the acquisition workforce to monitor
compliance of a panoply of social policy intertwined
with DOD contract requirements. An exemption from
the socio-economic requirements for commercial items
and those within the simplified acquisition
threshold would use tax dollars more efficiently.

D. Plan for the Future. DOD will propose Congress
enact a $100,000 Simplified Acquisition Threshold
under which purchases would be exempt from most
government-unique statutory requirements (e.g.,
those that specify the source of materials, specify
the means of transportation, require the submission
of reports by the contractor, or impose unique
socio-economic provisions on contractors, except
those noted below).

Under the DOD proposal, procurements under the
$100,000 simplified acquisition threshold would be
reserved for small businesses, while allowing awards
to small and small disadvantaged businesses under
both the Small Business Administration's 8(a)
program and what is best known as DOD's Section 1207
program. These procurements would also be reported
under the Office of Federal Procurement Policy Act
for a period of five years if over $25,000 and
subject to new notice requirements depending on how
well DOD implements electronic means of providing
notice and opportunities to bid.

DOD is moving aggressively to enhance the use of
electronic bulletin boards and electronic commerce
and electronic data interchange (EC/EDI), through a
quick-reaction Process Action Team. Existing pilot
electronic purchasing systems (e.g., GATEC at
Wright-Patterson Air Force base and EASE at NSC
Jacksonville) have demonstrated the potential to
reduce lead time from 29 to 11 days; achieve price
savings of approximately 12 percent on
price-volatile commodities such as food; increase
the number of bidders competing; and increase the
percentage of awards going to small businesses from
50 percent to 96 percent.

E. Action Plan. The DOD comments and a position on
each of the Section 800 Panel Report recommendations
have been finalized and will be transmitted to the
Office of Management and Budget (OMB) as a
legislative proposal.
F. Performance Metrics. DOD believes that it could
realize significant savings by increasing the small
purchase threshold to a $100,000 simplified
acquisition threshold and by removing the
applicability of various impediments that are unique
to the government contracting process.

A $100,000 threshold for DOD will:

~ remove about 40,000 purchases (approximately 20
percent of all purchases in excess of $25,000)
with a value of about $2 billion from the burdens
and cost of complex purchasing procedures while at
the same time increasing participation and awards
to small business;

~ permit 99 percent of DOD's contract actions (12.1
million in FY92, or one million actions per
month--46,000 actions each working day) to be
accomplished using simplified procurement
procedures, including use of automated processes
and credit cards, which would reduce the number of
acquisition personnel required to perform these

~ reduce acquisition lead time; and

~ provide contractors, particularly small
businesses, enhanced incentives to do business
with the Department by removing the burdens of
unique laws associated only with contractors who
sell to the federal government and their

2. Commercial Items

A. Description of Current Program. A large
telecommunications company developed a narrow band
voice radio featuring full-function digital
technology, improved voice quality, and enhanced
encryption capabilities --features highly sought
after by DOD and law enforcement agencies. Although
it was designed for sale as a commercial product, it
had not yet been sold to anyone. Because of
complicated laws and regulations governing the
non-competitive acquisition of new commercial
products and technologies that haven't yet been sold
in substantial quantities to the public, federal
government buyers were reluctant to purchase the
product without requiring cost and pricing data. The
company would not sell the item to the government if
it had to generate and provide cost and pricing data
to support the price it was charging, which it did
not need to do to establish the commercial price.
Thus, the government continued to buy a less
advanced _old technology_ system, while commercial
customers bought _state-of-the-art._

The Defense Personnel Support Center (DPSC) wanted
to contract with a large clothing manufacturer to
redesign military trousers so that the company could
produce both defense and commercial products on an
integrated line. Both the government and the company
would share in the resulting cost savings. DPSC also
wanted to learn from the company, an industry leader
in electronic quick response systems, how it could
take advantage of such a system to deliver trousers
to new recruits. Present law required DOD to obtain
and audit data from the company explaining how it
set its price. The company would not provide the
data and, as a result, DPSC's attempts to purchase
and learn from this experienced, successful company
were thwarted.

B. A Better Way. Maintain DOD's technological
superiority by ensuring it has access to
state-of-the-art commercial technology and integrate
the defense and commercial industrial base by
allowing DOD to acquire commercial products using
standard commercial practices. Large segments of the
U.S. industrial base will view DOD as a new market
never before open to them on normal business terms.
Many firms will see enhanced sales opportunities to

C. Background/Experience. As a purchaser of military
hardware and weapons systems, products for which
there is no commercial counterpart, DOD always has
had unique contracting requirements. To ensure
accountability for taxpayer dollars, a complex
system of audit and oversight was considered
necessary. With soldiers' lives and military
security at stake, government inspectors were
installed in manufacturing plants to make sure
stringent quality requirements were met.

In addition, as Congress passed laws to promote
various worthy social goals, government contracts
became more complex. Contract clauses required
contractors to set up drug-free workplace programs
and to purchase certain items only from U.S.
sources, among other things.

The administrative cost to comply with these
requirements, the resulting reduction in profit, and
the sheer sense of regulatory gridlock have now
advanced to the point that some commercial firms
have simply decided the cost of doing business with
the government is too great. The potential loss to
DOD of critical commercial leading-edge
technologies, combined with reductions in defense
spending, could severely compromise our national
defense technology and industrial base.

Many defense contractors who also sell to the
commercial market have set up separate divisions to
deal with these unique government requirements,
which they do not want to impose on their commercial
products. Firms have cited six primary areas in
which government procurement policies and
requirements impose significant burdens and require
them to fundamentally alter the way they do

~ government-unique cost principles and
accounting standards;

~ extensive audit and oversight requirements;

~ requirements to meet unnecessarily detailed
specifications and standards with the resultant
testing and inspection done to ensure conformance
with those requirements;

~ government technical data rights policies, which
may require companies to give up rights to
proprietary data that are closely guarded in the
competitive marketplace;

~ contract clauses intended to promote certain
social goals (e.g., requirements to transport
materials only in U.S.-flag vessels), that
interfere with the contractor's normal business
practices; and

~ commercially unacceptable requirements levied on

Unique oversight, auditing, and pricing requirements
do not need to be applied to commercial products
because the marketplace regulates the buyer/seller
relationship. Unique socio-economic laws applied
only to government contractors discourage commercial
companies who could otherwise meet the government's

D. Plan for the Future. DOD will propose a new
subchapter of Title 10, specifically tailored to
commercial item acquisitions, to create a new rule
structure and provide for exemptions from statutes
that create barriers to the use of commercial items.
Due to the general applicability of this proposed
inititiative, DOD recommends that this legislative
proposal be amended to apply governmentwide. This
new chapter will:

~ Include stronger policy language in favor of the
use of commercial and nondevelopmental items in 10
U.S.C. Sec. 2301.

~ Create a new definition of commercial items
distinct from the definition of non-developmental
items in 10 U.S.C. Sec. 2302.

~ Exempt the acquisition of commercial items from
the Truth in Negotiations Act, 10 U.S.C. Sec.
2306a, by utilizing fair and reasonable pricing

~ Create new exemptions to technical data
requirements for commercial items.

~ Exempt commercial items from _Buy American_
and domestic source restrictions and certain other
socio-economic requirements.

E. Action Plan. The DOD comments and a position on
each of the Section 800 Panel report recommendations
have been finalized and will be transmitted to OMB
as a legislative proposal. A Process Action Team has
been formed to develop an implementation plan for
the move from government-unique product or process
specifications or standards to commercial
specifications or standards. DOD will determine the
most serious impediments to commercial item
acquisition that do not require statutory change and
will form a Process Action Team to develop
regulatory changes. Another Process Action Team will
be formed to evaluate actions necessary to ensure
full utilization of commercial buying practices
authorized under DFARS 211.

F. Performance Metrics. As the administrative burden
on contractors is reduced, DOD expects a substantial
reduction in costs to the government. There also
will be a commensurate reduction in the number of
DOD personnel required to enforce lessened oversight
requirements for commercial item acquisition. This
will translate into significant savings as well. DOD
also expects increased access to the latest advanced
commercial technologies.

3. Defense Acquisition Pilot Program

A. Description of Current Program. For years
Rockwell had been manufacturing and selling
semiconductor devices to both the defense and
commercial markets. To produce economies of scale
and take advantage of efficiencies available through
a combined operation, Rockwell moved its
military semiconductor operations into its
commercial facilities. Because only a very small
percentage (less than 5 percent) of the business was
defense, it was not cost-effective to redo the
accounting systems to comply with accounting,
purchasing, and other government procurement
regulations. Because it did not want to comply with
government cost accounting and other rules, Rockwell
was unable to sell semiconductors made on the
commercial line to its defense customers (even
though the economy of producing in high volume would
have been a cost advantage to the government).
Attempts to resolve this dilemma with government
representatives were not successful. Rockwell
continued to support its existing defense customers
by giving them the semiconductors free until
theycould obtain alternate sources. Rockwell ended
up giving away about $1 million worth of commercial
work over three to four years un til the programs
were completed. Since then, that Rockwell division
has not sold to the government.

B. A Better Way. The critical ingredient of
adaptation to commercial practice is conversion from
a regulation-based system to a market-based system.
The purpose of the pilot programs is to take early
advantage of conversion to a market-based system by
removing barriers to the use of commercial practices
and products. Successful pilot programs will enhance
use of commercial products and reliance on a
national industrial base. This will preserve the
U.S. industrial base and stabilize domestic
employment opportunities.

C. Background/Experience. Section 809 of the fiscal
year 1991 Defense Authorization Act created a
_Defense Acquisition Pilot Program_ to test whether
or not efficiencies could be achieved from using
standard, commercial industrial practices to procure
defense goods and services. Section 800 of the same
Act created the DOD Advisory Panel on streamlining
and codifying acquisition laws. Its final report is
now the baseline for the acquisition of commercial

In 1991, the Center for Strategic and International
Studies (CSIS) released a report titled _Integrating
Commercial and Military Technologies for National
Strength._ In that report, CSIS concluded that _many
companies have dual systems of administration,
management, research and development (R&D), or
production in order to comply with the unique
requirements of federal contracting while also
pursuing their commercial goals._ The study further
found that _the burdens and risks of federal
contracting increase the cost of the goods and
services the government buys (without increasing the
value), unnecessarily limit competition to companies
that have instituted the appropriate compliance
systems, and restrict federal access to world-class
commercial production and management systems._

Because the original report was based on case study
evidence, CSIS conducted a follow-on study,
surveying more than 200 firms. The principal
conclusion of the survey analysis, stated in the
CSIS report _Integrating Civilian and Military
Technologies: An Industry Survey,_ was that _most
companies that operate in both the commercial and
federal markets alter their business procedures in
order to sell to the federal government and that
the cost premium to the government can be

DOD has identified seven candidate pilot programs
analogous to commercial item acquisitions to get a
head start on the efficiencies achieved through the
use of commercial practices, while awaiting
legislative action on the Section 800 Panel
recommendations. The seven pilot programs are Fire
Support Combined Arms Tactical Trainer (FSCATT);
Joint Direct Attack Munition (JDAM); Joint Primary
Aircraft Training System (JPATS); Commercial
Derivative Aircraft (CDA); Commercial Derivative
Engine (CDE); Global Grid; and certain medical,
subsistence, and clothing commodities of the Defense
Personnel Support Center (DPSC).

D. Plan for the Future. DOD will:

~ Develop a package of statutory waivers that
will be applied to the pilot programs.

~ Develop a package of regulatory waivers
that will complement the statutory waivers. They
will remove barriers to commercial practices and
commercial item acquisition that are imposed by

~ Develop an implementation strategy for each pilot
program that will govern how that program will
operate and be overseen in the streamlined
commercial environment.

E. Action Plan. The pilot program candidates have
been approved by OMB and will be submitted to
Congress as a legislative proposal. Congress must
designate the programs as pilot programs and specify
the statutory waiver authority permitted the
Secretary of Defense for pilot programs.

F. Performance Metrics. The pilot programs will be
evaluated against baselines such as competition
(increases in both the number of firms competing and
the number of commercial firms that have not
previously competed for defense contracts), program
schedule and cost, and administrative support cost
and time.

4. Military Specifications and Standards

A. Description of Current Program. The FAA certified
Allison 250-C30R Army helicopter engine (used in
lieu of a milspec engine) differs from the
commercial version in only one part. The engine was
procured as an off-the-shelf item, eliminating five
to eight years of DOD development time and cost.
Only the electronic fuel flow component, which
required approximately 30 months to develop and
certify, was developed specifically for DOD.
Compared to a military developed and qualified
engine, which the Army estimates would have cost
approximately $200 million, seven certified
off-the-shelf commercial engines were procured for
less than $2 million. Commercial warranties have
proven to be as good as--if not better--than
military equivalents. In addition, the Army has been
able to take advantage of several _commercial use_
changes that provided extended life in the desert
environment of the Gulf War.

B. A Better Way. Use of military-unique
specifications and standards must be prohibited
unless they are the only practical alternative to
ensure a product or service will meet the user's
needs. DOD must describe its needs in terms of
performance required and in a manner that permits
maximum reliance on existing commercial items,
practices, processes, and capabilities. Firms
currently unwilling or unable to change their
products to comply with military-unique
specifications and standards will see enhanced
business opportunities with DOD.

C. Background/Experience. The CSIS report _Road Map
for Milspec Reform: Integrating Commercial and
Military Manufacturing_ notes, _In the milspec area,
there is literally nothing new under the sun._ The
report goes on to say, _The problem is not defining
what needs to be done, but identifying the best way
to do it and then committing the resources and
staying the course in the face of bureaucratic or
political resistance._ Since 1986, there have been
at least seven major initiatives to decrease
reliance on military-unique specifications and
standards. These seven initiatives are:

~ 400 Federal Supply Class Initiative, to restrict
the revision or introduction of new military
specifications and standards in those
commercial-like product supply classes.

~ Qualified Manufacturers List Initiative, to
qualify a manufacturer's process rather than
individual products.

~ Defense Management Review Working Group 9
Initiative, to perform a zero-based review of
military specifications and standards, canceling
those documents that were no longer needed,
replacing those documents that could be replaced
with commercial specifications and standards, and
retaining and updating documents for
military-unique products and processes.

~ Commercial Acquisition Demonstration Program
Initiative, to define commercial item acquisition
and identify impediments or restrictions.

~ Simplified Non-government Standard Adoption
Initiative, to significantly increase the number
of adopted non-government standards.

~ Commercial Military Document Tiger Team
Initiative, to ensure that action was being taken
to adopt commercial specifications or convert
military specifications to commercial documents in
a limited number of highly commercial federal
supply classes.

~ Special Non-government Standard Conversion
Initiative, to convert military and federal
specifications and standards in specific product
areas to non-government standards by establishing
or using existing private sector standards

Although progress toward decreasing reliance on
military specifications and standards has been made,
it is not moving quickly enough. DOD has increased
the number of adopted non-government standards from
3,279 to 5,617 (a 71 percent increase) and the
number of commercial item descriptions from 1,973 to
4,857 (a 146 percent increase) over the last seven

D. Plan for the Future. DOD will:

~ Perform comprehensive market research to identify
potential commercial alternatives, and conduct
aggressive cost-performance trade-offs to ensure
that system requirements do not preclude use of
commercial products or processes.

~ State requirements in terms of performance or
form, fit, and function, and eliminate _how-to_
requirements for management and manufacturing
processes and permit _best commercial practices._

~ Rapidly eliminate unnecessary and obsolete
specifications and standards.

~ Use commercial-type specifications and standards
and non-governmental standards to the greatest
extent practicable.

~ Expedite conversion of military specifications
and standards for commercial items to commercial
item descriptions (CIDs) and non-governmental
standards; work with non-governmental standards
bodies to develop commercial equivalencies where
suitable non-governmental standards do not exist

~ Encourage industry, where military specifications
and standards are used, to propose alternative
solutions as substitutes for the referenced
military specifications and standards to the
maximum extent practicable.

~ Ensure that military specifications and
standards documents are applied correctly on

E. Action Plan. The Deputy Under Secretary
of Defense (Acquisition Reform) has directed that a
cross-functional Process Action Team be formed
including representatives from the Office of the
Secretary of Defense, the Military Departments, and
the Defense Logistics Agency to: (1) develop a
specific and comprehensive strategy and plan of
action to ensure maximum progress within the
shortest period of time toward elimination of
unnecessary military product and process standards
and specifications; and (2) to ensure that DOD
describes its needs in ways that permit maximum
reliance on existing commercial items, practices,
processes, and capabilities. The team began work in
late August and will
have its draft plan for the future by the end of
F. Performance Metrics. The Defense Science Board
reports that savings of 15 percent are feasible if
only half of the major weapons systems were designed
without military specifications. The Process Action
Team will develop appropriate metrics, considering
such tools as the number of commercial item
descriptions and non-government standards applied on

5. Contract Formation

A. Description of Current Program. Several contracts
were awarded for urgently needed supplies to support
military units in Europe. One week after the awards
were made, an unsuccessful offeror lodged a protest
with GAO. Under existing bid protest rules, DOD had
to suspend contract performance until the bid
protest was resolved. Generally this takes a minimum
of 45 days. After two informal discussions and one
formal debriefing explaining the bid selection to
the protestor, the company withdrew its protest. The
needed supplies finally were delivered to the
European theater.

B. A Better Way. Current procurement regulations
make it difficult if not impossible to do business
with private companies on terms that they
customarily use. The system needs to be streamlined,
mirroring commercial practices when appropriate, so
that companies are encouraged, not discouraged, from
doing business with DOD. For example, DOD is
considering experimenting with purchasing aircraft
that are derived from commercial aircraft such as
the 767 or MD-11. By reforming the acquisition
system, DOD will be able to tap innovative products
and services that otherwise would be unavailable,
and at the same time provide increased business
opportunities to many firms not now interested in
contracting with DOD.

C. Background/Experience. DOD has identified a
number of burdensome laws and regulations that
clearly inhibit the buyer-seller relationship and
DOD's ability to buy the products it needs. These
laws and regulations were passed to prevent waste,
fraud, and abuse and to promote competition. But
there have been many changes in technology. DOD
needs to rely more heavily on the commercial

Mindful of this, the Section 800 Panel, which
reviewed 80 DOD contract
laws relating to the contract formation process,
recommended changing the laws to build more
flexibility and innovation into the acquisition
process. DOD contracting laws cover publicizing
requirements, competing or justifying the absence of
competition, soliciting offers, evaluating bids and
proposals, and pricing and awarding contracts. The
proposed changes would allow DOD to continue to
conduct its procurement process in an open, fair,
and ethical manner while still meeting mission
requirements more effectively.

Examples of burdens on the contracting system:

~ The Truth in Negotiation Act (TINA) allows large
contracts to be awarded without price competition
only if the supplier can provide a detailed
breakdown of how it arrived at its price. Because
of the expense, and because commercial contractors
do not price their products on the basis of the
specific costs to build them, commercial
contractors do not typically maintain cost
accounting systems that can provide the type of
detailed cost information required by the
government. The Section 800 Panel concluded that
the requirement to provide cost or pricing data
should be stabilized at contracts worth $500,000,
rather than having it revert back to $100,000, as
present law provides. It also recommended that the
exemptions to TINA be broadened to facilitate the
acquisition of commercial products.

~ Current law requires that executive agencies
publish notice of their intent to contract 15 days
before releasing their requests for bids and
proposals, and that companies be given 30 days to
respond before a contract is awarded. The law was
established to promote competition and enhance
opportunities for small businesses. However, the
statutes do not recognize that many in the private
sector now routinely find out about business
opportunities through electronic bulletin boards,
which convey information more quickly, and use
total electronic data interchange (EDI) systems
that enable them to provide quotes automatically.

In 1986, Congress established a preference for
off-the-shelf technology available in the commercial
marketplace. DOD believes that this preference will
become more and more important as its budget is
reduced. When Congress established this preference,
it did not amend many basic competition statutes to
ease regulations governing these purchases. After a
review of these statutes, the Section 800 Panel
recommended that laws be amended to lift these
barriers to the competitive acquisition of
non-developmental items.

D. Plan for the Future. DOD will:

~ Champion the effort to maintain our technological
superiority by fostering the integration of the
defense and commercial industrial sectors into a
national industrial and technology base (composed
primarily of commercial companies that can meet
the needs of DOD).

~ Propose Congress amend Title 10 U.S.C. to
incorporate a broad defense procurement policy
that integrates existing congressional policy and
the 10 strategic DOD procurement objectives
identified by the Section 800 Panel. Due to the
general applicability of this proposed
inititiative, DOD recommends that this legislative
proposal be amended to apply governmentwide.

~ Propose establishment of a uniform threshold of
$500,000 for application of the Truth in
Negotiation Act (TINA) and broaden the exemption
to include commercial products and leading-edge
commercial technology. Due to the general
applicability of this proposed inititiative, DOD
recommends that this legislative proposal be
amended to apply governmentwide.

~ Propose the establishment of a legislative policy
requiring timely and meaningful debriefings to
unsuccessful offerors and the establishment of a
contract protest file that would be accessible to
all offerors.

~ Propose that Congress consider and study the
creation of a single independent forum for
resolving bid protests (to streamline the

~ Propose that Congress amend the statute to delete
the authority and rule structure for master
agreements for advisory and assistance services
and set forth a new more flexible authority for
task order and other similar contracts. Due to the
general applicability of this proposed
inititiative, DOD recom-mends that this
legislative proposal be amended to apply

~ Propose to Congress a change to allow the head of
an agency to waive the percentage limitations on
obligations on undefinitized contract actions (in
certain limited cases).

E. Action Plan. The DOD comments and a position on
each of the Section 800 Panel recommendations have
been finalized and will be transmitted to OMB as a
legislative proposal. DOD has already begun to
pursue the increased use of EC/EDI with the creation
of a Process Action Team (discussed earlier in the
section on Simplified Acquisition Thresholds).
Another Process Action Team has been established for
military specifications to assist DOD in
implementing a clear preference for commercial and
non-developmental items.

F. Performance Metrics. The Department anticipates
that it can save money by redesigning its
acquisition processes. Significant savings will
occur in overhead for both DOD and the private
sector. DOD anticipates more favorable prices will
be offered as competition increases and contractor
overhead is reduced. The application of electronic
solutions will lead to increased efficiencies by
eliminating tasks currently performed by acquisition
personnel. Material managers both within DOD and
private industry should also be able to
significantly reduce their inventory holding costs
as DOD moves toward an acquisition system that
provides improved customer support. Improved
debriefings to unsuccessful offerors will also
result in DOD cost avoidance for protests not filed.

6. Contract Administration

A. Description of Current Program. The executive had
been promoted from the commercial division of the
company and was looking forward to working in a
division whose major customer was the Department of
Defense. She was being briefed on all of the unique
rules that applied to DOD contracts--cost accounting
standards, audits, invoicing, vouchering, which
costs were allowable and which weren't, and so
on--and how all those affected her job. Much of what
she was hearing, particularly about some of the
costs not allowed under government contracts, she
thought made good sense for taxpayers. But she had
many questions. Too often the answer was, _I'm not
sure, I'll have to check with counsel or
accounting._ Finally, the new executive exclaimed,
_You may not mean to, but you're making it sound
like if anybody wants to work on government
contracts, they need to hire hundreds of attorneys
and CPAs!_

_Well, actually,_ one of the managers admitted,
after some hesitation, _that is often the case._

B. A Better Way. The laws and regulations relating
to the contract administration process should be
clear, concise, easy to locate, and easy for
non-lawyers to understand. They should not prevent
companies from selling to the government. The
government's cost of administering a contract should
not be so high it does not justify the benefits

C. Background/Experience. An April 1993 CSIS report,
_Integrating Civilian and Military Technologies: An
Industry Survey,_ said that in a survey of 206
companies, administrative costs of selling to the
government were from three to five times those of
selling commercially. A 1992 Defense Systems
Management College (DSMC) survey reported that costs
associated with government sales were roughly four
times those associated with those to commercial

The DSMC data further showed that for every employee
in a comparable position in a commercial division of
the company, the government division employed eight
people in accounting, six in purchasing and
subcontracting, 12 in auditing, and two in the legal
department. In both reports, the government's unique
accounting requirements were identified as one of
the primary causes of those higher expenses.

The government needs to streamline its accounting
requirements and acquisition laws--in effect, make
them more _commercial-like_ and easier to
understand. While DOD clearly recognizes that the
public must always remain fully protected against
possible abuses and waste, excessive administrative
costs harm companies_ competitiveness and
unnecessarily increase costs for DOD and the public.
D. Plan for the Future. DOD will:

~ Propose a change to the Truth in Negotiations Act
to exempt commercial items from Cost Accounting
Standards (CAS) and propose to the CAS Board that
it make its advance rule change a final rule. The
imposition of CAS on commercial companies
significantly increases their costs and forces
most to set up separate production facilities for
DOD and non-DOD customers, even though the
product is largely, or even purely, commercial.
Although the Cost Accounting Standards Board
recently issued an advance rule change that
increases the number of commercial item
acquisitions that are exempt from CAS, many
commercial item purchases will continue to be
covered by CAS unless Congress adopts DOD's
proposed changes to the Truth in Negotiations Act
(TINA). DOD believes that contractors should be
completely free to fully integrate defense and
commercial production whenever possible.

~ Propose the consolidation of laws relating to
advance, partial, and progress payments into one
comprehensive statute. As the Section 800 Panel
found, the many laws relating to payment are among
the most duplicative, dispersed, and difficult to
understand of any of the laws affecting contract
administration. Due to the general applicability
of this proposed inititiative, the DOD recommends
that this legislative proposal be amended to
apply governmentwide.

~ Propose the amendment of useful and valuable laws
and authorities originally passed for wartime or
national emergency conditions so that they are
applicable to normal, peacetime conditions as
well. For example: Public Law 85-804,
_Extraordinary Contractual Relief,_ has proved
useful during peacetime, yet is available only
during a national emergency declared by the
Congress or the President and for six months
thereafter. Similarly, 41 U.S.C.15, which limits
assignments of payments under contracts except in
time of war or national emergency, has proven
useful particularly to small businesses in
obtaining private financing.

~ Propose the repeal of duplicative, superseded, or
outdated laws. For example, the Vinson-Trammell
Act, a limitation upon defense contractors_
profits, has been ineffective for most of its life
because Congress, starting in the 1940's, came to
realize that its approach of limiting profits to
specific percentages of contract prices actually
curtails incentives to reduce costs, and so passed
several successive statutes that restricted the
application of the Act.

~ Propose the repeal of laws that are not
cost-effective. The Section 800 Panel found that

some laws, such as 10 U.S.C. 2403, which requires
contractor guarantees for major weapon systems,
inadvertently cause DOD managers and contractors
to take actions or make decisions that cost more
than the benefits are worth. Even though such laws
often contain provisions for exemptions where
costs of compliance outweigh the benefits, the
laws nonetheless establish such strong
presumptions for a particular course of action
that many managers are reluctant to challenge the
laws_ presumptions.

~ Establish a Process Action Team to develop
recommendations for change to DOD's internal
contract administration procedures. DOD already
has several initiatives underway to streamline and
simplify contract administration. Two very
successful initiatives are the Defense Contract
Management Command's Process-Oriented Contract
Administration Services (PROCAS) and the
Contractor Risk Assessment Guide (CRAG) program,
administered by the Defense Contract Audit Agency.
The success of these programs suggests DOD can go
still further in relieving the burden of contract
administration for both the government and
contractors. The Process Action Team will look at
all contract administration activities and develop
a strategy and implementation plan for improving
the efficiency of DOD contract administration
procedures while still fully protecting the
public's interests against abuse and waste. Some
of the issues the team will examine are exempting
mostly commercial producers from incurred cost
audits and allowing contractors_ interest costs
in lieu of government-provided financing.

E. Action Plan. For those items requiring
congressional action, DOD comments and a position on
each of the Section 800 Panel report recommendations
have been finalized and will be transmitted to OMB
as a legislative proposal. DOD will make a
recommendation to the Cost Accounting Standards
Board to make its recent advance rule changes in CAS
a final rule.

F. Performance Metrics. With implementation of the
measures above, DOD expects that the administrative
costs companies incur in doing business with the
Department will decline substantially and come much
closer to those costs experienced in selling to the
commercial market.

7. Major Systems and Testing Statutes

A. Description of Current Program. A government
procurement expert from academia testified before
the Senate that DOD program managers spend more time
answering questions from all the people around the
Department of Defense than they do running their
program. The program manager of an admittedly
troubled Air Force program estimated that 70 percent
of the program office's activity was consumed in
responding to external oversight demands rather than
managing the contract.

One Army program executive officer indicated that
Army program managers spend between 300 and 600
man-hours of effort annually preparing just
the Selected Acquisition Report and the Unit Cost
Some weapons systems undergoing testing to determine
whether they meet operational performance criteria
must comply with testing requirements in three
different statutes, and at least two different
reports must be submitted to Congress.

B. A Better Way. Weapons systems, which consume the
majority of the DOD acquisition budget, require
independent oversight and thorough testing. DOD
needs to retain the broad policy contained in the
current major systems and testing statutes. However,
these rules are excessively detailed, duplicative,
and inconsistent with the realities of a declining
defense budget. The Department needs to streamline
them, provide additional flexibility, and reduce
non-value-added oversight.

C. Background/Experience. The DOD Acquisition Law
Advisory Panel, commonly known as the Section 800
Panel, reviewed the major systems and testing
statutes and made the following recommendations:

~ Remove the excessive detail from the Selected
Acquisition Report (10 U.S.C. 2432), incorporate
the Unit Cost Report requirement (10 U.S.C. 2433)
into the Selected Acquisition Report statute, and
eliminate the 25 percent unit cost certification

~ Streamline the requirement for independent cost
and manpower estimates (10 U.S.C. 2434) and for
program baselines (10 U.S.C. 2435) by eliminating
statutory detail but retaining existing policy.

~ Repeal the Defense Enterprise Program (10 U.S.C.
2436) and the Milestone Authorization Program (10
U.S.C. 2437) because neither program has been
successfully implemented by DOD or supported by

~ Repeal the statutory requirements for competitive
prototyping (10 U.S.C. 2438) and competitive
alternative sources (10 U.S.C. 2439) because
mandating such strategies is inappropriate in
today's reduced budget environment and may be

~ Consolidate the four current testing statutes (10
U.S.C. 2362, 2366, 2399, and 2400), which contain
different definitions and excessive reporting
requirements, into one streamlined statute.

D. Plan for the Future. DOD will:

~ Propose legislation incorporating many of
the Section 800 recommendations.

~ Establish a Process Action Team to develop
an implementation plan to better integrate the
processes for resource allocation and requirements
determination. This will ensure that the most
effective, affordable, technically feasible and
best value solution to a deficiency in current
military capability or emerging need is developed
after consideration of realistic cost, schedule,
performance, and industrial base considerations.

~ Establish a Process Action Team to develop a plan
for tailoring acquisition strategies and policies
to various typesof procurements (e.g., commercial
products, research and development, major systems
acquisitions with little risk, major systems ac
quisition with significant risk), considering such
factors as the appropriate amount of oversight,
among others.

E. Action Plan. The DOD comments and a position on
each of the Section 800 Panel report recommendations
have been finalized and will be transmitted to OMB
as a legislative proposal. Process Action Teams will
be established to recommend actions to better
integrate resource allocation, requirements
determination, and the acquisition system and to
tailor acquisition processes and regulations.

F. Performance Metrics. The military departments
have estimated that reduction in oversight and
reporting requirements could reduce program office
workload and lead to program office staffing
reductions. Reduction of workload and any staff
reductions will be tracked.

8. Defense Trade and Cooperation

A. Description of Current Program. Negotiations on
the U.S. Navy's AV-8B Harrier II Plus cooperative
radar integration program with Italy and Spain were
significantly disrupted by an unrelated U.S.-Spain
dispute over the statutory prohibition against
purchasing foreign anchor mooring chain. This
jeopardized the entire II Plus research and
development program. The $165 million Harrier II
Plus Program was equally shared by the three
countries and has resulted in additional follow-on
production and support of approximately $1
billion--which translates into 25,000 U.S. jobs.

The United States and its allies cannot continue to
proceed down parallel development and production
paths because of the staggering costs of developing
and fielding new systems. For example, it would have
been far less expensive for the nations that are
participating in the development of the European
Fighter Aircraft (EFA) to have bought an improved
F-16 Agile Falcon or F-18 Hornet. The comparable
costs are $20-30 million per copy for F-16/F-18
variant versus costs of approximately $40-60 million
for the EFA.

B. A Better Way. Promote the U.S. defense technology
and industrial base in times of declining defense
expenditures by exporting defense items to our
allies and broadening the pattern of international
armaments cooperation.

C. Background/Experience. The integration of
international and domestic economic security is
emerging as a key issue to be considered as the
United States restructures its defense
establishment. DOD needs to focus on the economic
aspects of American security, because defense
acquisi-tion faces the twin challenges of reducing
procurement expenditures while preserving a viable
industrial and technology base. A robust industrial
base is required to promote American technological
competitiveness and ensure needed domestic _surge_
capacity in a wide variety of crisis mobilization
scenarios--not unlike Operation Desert Shield. DOD
needs to reassess its international agreements in
light of the new types of threats it faces. Just as
DOD found in Operation Desert Storm that its
inter-service agreements did not provide the needed
flexibility to accommodate all contingencies, the
same would hold true for its international
cross-servicing agreements.

Items acquired by DOD must often be the same as--or
function with--articles acquired by our allies. DOD
should have additional statutory authority, for
example, to encourage the purchase of NATO-standard
items, which may or may not be available from U.S.
sources, as well as to encourage increased allied
burden-sharing. Likewise where NATO-standard items
are or could be available from U.S. sources, DOD
should encourage their export and thus enhance the
competitiveness of our national defense technology
and industrial base.

As the domestic requirement for new weapons systems
decreases, there may be an increased opportunity to
participate in defense cooperation projects
and sell U.S. products and services abroad. Selling
U.S. defense products abroad not only permits the
economic production of such products, while lowering
the unit cost of items for U.S. forces, but will
also enhance the national defense technology and
industrial base. The United States can expect that
as our allies look to foreign exports to help their
own industrial base problems, defense companies
could use assistance in promoting their
exports--assistance that DOD is not in a position to
provide without additional statutory authority.

Further, the issue of domestic source restrictions,
such as the Buy American Act, is a contentious one.
To determine whether DOD may or must limit
competition for an item to domestic sources only, a
contracting officer must review the following

~ the Trade Agreements Act, Title 19;
~ the Buy American Act, Title 41;
~ military assistance and foreign military
sales, Title 22;
~ various annual authorization and appropriations
~ international treaties; and
~ memoranda of understanding and related
international agreements.

Although there are certain technologies that
may be so essential to national security that such
products must be developed and acquired only from
U.S. sources, _Buy American_ statutes often are not
tied to a clear analysis that production of the
items in the United States is essential to national
security. Restricting acquisitions to U.S. sources
often causes a _tit-for-tat_ reaction from other
countries that precludes U.S. companies from
bidding. Protectionism has not proven effective in
maintaining the viability of U.S. industry absent
other factors.

The Secretary of Defense is in the best position to
restrict acquisitions to U.S. sources and control
the foreign ownership of key defense industry
sectors to ensure this country's continuing military
strength. The Secretary is in the best position to
determine whether there is a level playing field in
defense trade with a particular country, and to
enter into defense acquisition partner-ships to
share costs of research, development, and/or
production accordingly. In analyzing the
legislative changes needed to help providethat level
playing field in defense trade and cooperation, the
Section 800 Acquisition Law Advisory Panel
concluded that:

~ Department of Defense international defense
acquisition policies should be consistent, on a
reciprocal basis, with the defense acquisition and
trade policies of U.S. allies;

~ Department of Defense international defense
acquisition policies on international and
cooperative agreements should be consistent with
the maintenance of strong domestic technology,
industrial, and mobilization bases;

~ Department of Defense international defense
acquisition policies should be consistent with
international operationalagreements, allied
logistics support and standardization, and export
sales of defense items to foreign countries.

In order to better take advantage of cooperative
program opportunities, the Secretary of Defense
should have the flexibility to adapt to the
acquisition practices, rules, and procedures for
international partnerships that treat our allies as
partners (contributing a significant portion of a
cooperative program costs while receiving a
commensurate share of the program work) as compared
to customers pursuant to the sales procedures and
rules of the Arms Export Control Act.

D. Plan for the Future. DOD will:

~ Seek to consolidate the statutory authorities
concerning international cooperation, acquisition,
cross-servicing, and standardization into a
dedicated new chapter in Title 10, while
recommending specific statutory revisions to
cooperative project and international agreement

~ Propose to Congress an amendment to the Buy
American Act to incorporate a substantial
transformation rule-of-origin test, making it
consistent with the Trade Agreements Act and other
trade agreements, and seek to eliminate the DOD
balance-of-payments evaluation differential.

~ Seek to repeal or rescind all domestic source
restrictions that are not enacted as part of a
comprehensive restatement of law or established
pursuant to the inherent statutory authority of
the Secretary of Defense and based on industrial
base considerations.

E. Action Plan. The DOD comments and a position on
each of the Section 800 Panel recommendations have
been finalized and will be transmitted to OMB as a
legislative proposal. The _Plan for the Future_ in
section D above will be studied and addressed, with
appropriate legislative and regulatory
recommendations, through the formation of an
International Defense Acquisition Process Action
Team. The team will comprise experts and experienced
practitioners in the international defense
acquisition community and will be tasked to devise
a strategy and implementation plan for achieving the
DOD vision.

F. Performance Metrics. One military department
recently calculated that during the period
1987-1992, approximately $555 million in savings
was realized from international cooperative research
and development programs. While these savings
demonstrate success in pursuit of _win-win_
international cooperative research and
developmentprograms, its success has largely been
accomplished in spite of--rather than because
of--the present legislative and regulatory system.
With implementation of a streamlined legislative and
regulatory framework to extend the cost sharing and
interoperability benefits of international
cooperative research and development programs
throughout DOD, savings of a similar or greater
magnitude are anticipated.

9. Intellectual Property Rights

A. Description of Current Program. The company's
Vice President for Business Development was meeting
with his President. _This,_ the V.P. said, referring
to a DOD Request for Proposals, _we could do very
easily with an adaptation of the new traveling wave
technology we've just developed._

"So what's the problem?" the president asked.

"Technical data rights."

"That shouldn't be any problem," the president said.
"That technology's ours. We developed it all by

"Under their contracts, DOD always get unlimited
rights in "form, fit, and
function" data. They also get unlimited rights to
any manuals or training materials. Now, throw in
that adaptation I was talking about earlier. If we
bill the costs of developing the adaptation to the
contract, DOD is probably going to insist we
negotiate with them over rights to that data--and
probably more data, as well."

"What do they plan to do with the data?"

"Among other things, probably use it for competitive
spare parts buys."

"Which means," the president filled in, "some sharp
person just might get enough information to figure
out the basis for our technology, and all of a
sudden, it's in the open and we have nothing to show
for our investment!"


The president shook his head slowly.

"Our choices, as I see it," the V.P. said, "are to
bid with the new technology and take our chances,
bid with the old "standard" technology, or not bid.
What do you want to do?"

"I don't know."

B. A Better Way. On an increasingly lethal
battlefield, the nation's soldiers, sailors, airmen,
and Marines require the best technology available,
no matter what its source. In order to achieve this
goal, DOD should acquire rights in technical data
and computer software in a manner that maximizes the
flow of technology from the commercial sector to DOD
and from DOD to industry, but that also allows
companies (and individuals) to protect their
commercial interests in technology, products, or
processes they have developed.

C. Background/Experience. In 1983, the stories of
exorbitant spare parts prices ($600 toilet seat and
$400 claw hammer) outraged the nation. Congress
reacted by encouraging DOD to acquire rights in
technical data, not only to ensure safe and
efficient operation ofthe equipment it buys, but to
make _follow-on_ and spare parts purchases
competitively to ensure DOD would not become
_captive_ to the original equipment manufacturer.

Companies, on the other hand, are concerned about
protecting their
compe-titive position in an economic environment
where success increasingly depends on which company
is first in bringing new products or new technology
to a global marketplace. This makes companies,
particularly those with commercial products,
cautious of releasing data, and wary of DOD as a

In the mid-1980s, it became apparent that the areas
of confluence between com-mercial and military
technologies were increasing. Indeed, in some areas
vital to the development of weapon systems,
commercial companies had outpaced DOD's efforts (for
instance, in microprocessor technology, where
defense technology lags behind the best commercial
technology by three to five years). However, as the
Packard Commission pointed out in 1986, DOD's policy
of acquiring intellectual property rights was
affecting the willingness of firms to bring their
best technologies to the defense marketplace.

Congress, aware of industry's concerns, responded
with amendments to existing statutes to promote a
better balance between the government's needs for
technical data and contractors' needs for protection
of proprietary data. In September 1985, DOD
published proposed implementing regulations that
failed to satisfy commercial companies' needs. The
proposed regulations were withdrawn. Several revised
proposals have been published since, which have also
failed to satisfy industry's concerns. DOD's current
policy for acquisition of technical data rights is
defined by an _interim rule_ that took effect in

In 1991, Congress created the Government-Industry
Technical Data Committee to review the government's
technical data rights policies. The committee has
been performing an exhaustive review of the current
policies and procedures and has made encouraging
progress. It has determined that a balancing of
developers' and the government's interests in
technical data and software can be made without
statutory change.

Finally, secrecy orders on patent applica-tions,
patent infringement by government contractors, and
copyright protection of software continue to present
a problem between DOD and its contractors.
Resolution of these problems, along with those noted
above, is necessary to improve the long-term
competitiveness of domestic firms.

D. Plan for the Future. DOD will:

~ Promote new policies for the acquisition of
technical data and computer software that will
strike a balance between technology developers'
commercial interests and the government's needs.

~ Establish a Patent and Trademark Advisory
Committee, chaired by DOD, to shift responsibility
from the Patent and Trademark Office to a body
with expertise in both the control of technology
and its development and the capability to assess
whether publication would be detrimental to the
national defense, to conduct reviews to determine
if a secrecy order should apply to a patent

~ Propose an amendment to allow federal agencies to
copyright software that their employees have
developed as part of the employees' official
Allow federal agencies to license software to
commercial companies to assure them that whatever
develop-ments or improvements they make in the
software will be protected by law.

E. Action Plan. When the Government-Industry
Technical Data Committee submits its final
recommendations to DOD, public comments will be
obtained and analyzed, and DOD will prepare
regulatory coverage within 120 days. As required by
Section 807 of the 1992/1993 National Defense
Authorization Act, the Secretary of Defense will
report the committee's recommendations to Congress
at least 30 days before issuing the final
regulations. DOD will have any required implementing
regulations in place six months after passage of the
authorizing legislation.

F. Performance Metrics. With the implementation of
the measures described above, DOD will begin closing
the technology gap in those areas where commercial
technology leads. DOD anticipates that there will be
a significant increase in the number of federal
software developments that are successfully

10. Service-Specific Acquisition Laws

A. Description of Current Program. A 1926 statute,
specifying that invitations for bids for
experimental aviation design and procurement be
advertised in at least three leading aeronautical
journals for not less than 30 days, remains in
effect even though it has clearly been superseded by
more recent legislation and no longer is relevant to
modern aviation acquisition.

The Navy International Program Office faced
significant delays in the transfer of three Knox
class frigates and an Adams class destroyer to
Greece in early 1992 because of a requirement to
notify the congressional defense committees of such
transfers and then await expiration of 30 days
continuous session. Such delays, particularly in
_hot-ship_ transfers where the foreign crew relieves
the U.S. watch simultaneously with decommissioning,
cost money and manpower.

B. A Better Way. Grants of authoritythat remain
useful should be retained, consolidated and, where
necessary, amended to modernize them. Authorities
that are no longer used or are otherwise obsolete
should be repealed.

C. Background/Experience. Service-specific
acquisition statutes include Army and Air Force
statutes that evolve historically from the same
source law, and Navy-unique laws. The laws include
many authorities that are decades--or even
centuries--old, and that have become obsolete or
rendered uselessby more recent legislation.
Authorities that remain useful are not available to
all the Secretaries of the military departments
andthe Secretary of Defense.

Specific limitations, such as the 6 percent fee
limit on architect-engineering contracts, no longer
serve their original purpose and are significant
administrative burdens, particularly for modern,
technically complex projects. Certain historical
authorities, while remaining useful to the military
depart-ments, do not fully address modern
acquisition requirements.

D. Plan For the Future. DOD will propose that
Congress amend the relevant legislation to:

~ Retain useful authorities and amend them to vest
such authorities, when appropriate, in the
Secretary of Defense as well as the secretaries of
the military departments.

~ Repeal obsolete statutes, such as the 6 percent
fee limit on architect-engineering services.

~ Modernize the authority to sell or loan, to allow
DOD to give samples of items that may promote
independent researchand development and provide
for the sale of services from government test
facilities for use by private contractors.

~ Modernize the authorities provided the Civil
Reserve Air Fleet, to permit private contractors
limited commercial useof military airfields.

E. Action Plan. The DOD comments and a position on
each of the Section 800 Panel report recommendations
have been finalized and will be transmitted to OMB
as a legislative proposal.

F. Performance Metrics. Elimination of the obsolete
6 percent fee limit should result in higher quality,
more efficient architect-engineering services and
eliminate significant administrative burdens in
ascertaining which services are subject to fee limit
and which are not. Elimination of duplicative
congressional notice requirements for Navy ship
transfers will reduce administrative costs.
Enactment of modernized authority to sell, loan, or
rent will facilitate technology transfer between
government and private sector. Enhancement of Civil
Reserve Air Fleet authorities will increase use of
the commercial air fleet to meet military transport
needs, with savings from decreased demand on
military aircraft.

11. Standards of Conduct

A. Description of Current Program. A DOD official
violates ethics rules by accepting a DOD
contractor's offer to fly on the contractor's
aircraft to the plant for an official inspection
visit, even if the alternatives cost much more and
are very inconvenient.

One defense-unique post-employment restriction
resulted in DOD issuing more than 4,300 legal
advisory (_safe harbor_) opinions in a 19-month
period; in only 4 percent of those opinions did the
DOD find that the law even potentially applied.

B. A Better Way. Acquisition laws should promote
financial and ethical integrity in ways that are
simple, understandable, and not unduly burdensome
and that encourage sound and efficient procurement

C. Background/Experience. There are more than 100
statutory sections setting forth the rules guiding
standards of conduct in defense procurement. These
include statutes covering post-employment
restrictions of government personnel, contractor
certifications, and
false claims.

Criminal fraud statutes--within Title 18 of the U.S.
Code--apply to all federal sector procurement and
provide for criminal remedies on false claims,
conspiracy to commit false claims, conspiracy to
defraud the government, and false statements; they
generally require a finding of specific intent to

Civil fraud statutes--the False Claims Act--provide
remedies for knowingly presenting, or conspiring to
present, false or fraudulent claims to the United
States for payment; the action may be brought by the
government or a private person on behalf of the
government (so-called qui tam actions) and provide
treble damages, with a qui tam plaintiff entitled to
up to 30 percent of recovery.

Piecemeal legislation sets forth a wide variety of
restrictions on post-government employment
(including opportunities and discussions), gifts and
gratuities, acts affecting personal financial
interests, disclosure of procurement-related
information, and certification and reporting
requirements related to these issues, as well as
administrative, civil, and criminal penalties for

Nearly all ethics laws overlap. The propriety of a
given event is nearly impossible to measure when two
laws apply competing tests to the same situations.
This spectrum of laws is a significant impediment to
defense acquisition.

The recent efforts to create a scandal-proof
government have gone so far that on balance, they do
more harm than good. Some of these ethics reforms,
especially recent attempts to purify the procurement
process by imposing broad restrictions on
post-government employment, afford little ethical
protection at very high cost--a bad bargain for the
government and a bad bargain for the public.

D. Plan For the Future. DOD will propose that

~ Adopt legislation proposed by Office of Government
Ethics (OGE) and the Office of Federal Procurement
Policy (OFPP) in 1990 and 1991 that would revise
procurement integrity laws to simplify ethics
requirements and make them consistent across
government, including deletion of current
contractor certification requirements in favor of
a prohibition on disclosure or receipt of certain
sensitive source selection or proprietary

~ Clarify and simplify _revolving door_ laws by
establishing one law that would prohibit certain
former procurement officials from representing,
aiding, or advising any person concerning a
procurement for one year after government service.

E. Action Plan. The DOD comments and a position on
each of the Section 800 Panel report recommendations
have been finalized and will be transmitted to OMB
as a legislative proposal.

F. Performance Metrics. Greater clarity in
government ethics laws will ease the administrative
burden of unnecessary interpretative opinions.
Modification of _revolving door_ laws will remove
barriers to higher quality recruitment within the
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