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Table 2.3 Seven Deadly Sins of Acquisition36 Nunn-McCurdy Breaches Senator Sam Nunn (D-GA) and Representative David McCurdy (D-OK) amended the Defense Authorization Act for Fiscal Year 1982 to limit cost growth in major defense acquisition programs (MDAPs). The amendment calls for program managers to report a “Nunn-McCurdy Breach” to their SAEs if the cost of weapons programs grow by more than 15 percent above original baseline estimates. When total costs grow by more than 25 percent above original estimates, the amendment also calls for funding termination of weapons programs within 30 days of notice. To remain funded, a SECDEF certification is required and that responsibility is delegated to the Defense Acquisition Executive (DAE). Military services must provide written documentation to the DAE that the program in jeopardy is essential to national security, that there are no alternatives at less cost, that the new cost estimates are reasonable, and that the management structure is adequate for program continuation.37 Since 2000, there have been 12 “significant” breaches (30 percent over baseline) and 22 “critical” breaches (50 percent over baseline). Two examples of “critical” breaches are the Navy’s Theater Ballistic Missile Defense that was cancelled and the Air Force’s Joint Air to Surface Standoff Missile that was given a deferment for one year to execute a recovery.38 In 2007, the net cost increase in 94 DoD acquisition programs from June to September was $7.65 billion—over 80% due to poor cost estimating. Not all breaches are bad. Some are due to quantity changes or additional capabilities. For example, the Navy’s EA-18G had cost increases of $321 million to accommodate the purchasing of five additional aircraft.39
When it comes to acquisitions, several stakeholders’ expectations must be considered. Besides the defense contractors and suppliers, there are the customers, the brains, and the bank, or “The A-Team” in honor of “Big A” acquisition. The A-Team Defense acquisition contracts are usually supported by a consortium of a prime defense contractor and other sub-contractors that provide jobs in many states. Prime contractors see themselves as designers and system integrators.40 Large defense contractors vary in their degree of vertical integration, but generally find it financially beneficial not to manufacture every single component anymore. Instead large defense contractors design systems (hopefully with ever-increasing commercial off the shelf equipment to save on cost) and concentrate on final assembly. The warfighters are the ultimate customer and usually represented by the Combatant Commanders (COCOMs). COCOMs let their needs be known to the respective services. In the Air Force’s case, the requirements makers at Air Combat Command become the defacto customers who work the Planning, Programming, Budgeting, and Execution System (PPBES). The brains, not excluding the defense contractors, are the military acquisition program management offices like the Air Force’s Electronic Systems Command at Hanscom Air Force Base (AFB), Massachusetts; Air Systems Command at Wright-Patterson AFB, Ohio; Air Armament Center at Eglin AFB, Florida; research groups like Defense Threat Reduction Agency and Defense Advanced Research Projects Agency, and the test community like the test wings at Eglin, Holloman, and Edwards AFBs. Unfortunately, it is easy at times for the brains to become the customer because most everyone wants to look successful to their boss. The bank controls the purse strings and they reside at oversight offices, financial management offices, and Congress. The oversight and financial management offices sit at each service’s headquarters staff and at the joint staff that deal with the PPBES approval. Acquisition category milestone decision authority resides with the Program Executive Officers (PEOs), Component or Service Acquisition Executives (C/SAEs), and the Defense Acquisition Executive (DAE). Ultimately, Congress approves the President’s budget each year. Representatives and Senators want the best, most affordable, cutting edge warfighting systems for service men and women. They often struggle to balance their support of this objective with their support for programs that provide jobs for their constituents. Sue Payton, Assistant Secretary of the Air Force for Acquisition, the SAE, insists, however, that the USAF will choose the best value programs according to her motto, “No fears, no favors!”41
At Boeing’s 2007 Team Leader Training in Saint Louis, Missouri, in November 2007, Judy Stokley, Executive Director and Deputy Program Executive Officer of the Air Armament Center, described government expectations of industry.42 She emphasized effective, affordable, and reliable products (on time, on cost, on target); ownership of product health; realistic marketing and budgeting; matured technologies; and flexibility to surge or drawdown in response to changing war needs. On Time, On Cost, On Target. Contractor program managers should actively manage schedule and cost variance with the Earned Value Management System (EVMS) and ensure agreement over technical performance measures (TPMs). There will be problems and the government and contractor must solve them together. Bottom line, the program baseline agreed to at Milestone B is the DoD’s contract with Congress. Ownership of Product Health. Defense contractors that resort to contract legal wrangling present a problem. Using contract disputes to avoid producing the best final product possible let tax payers down and even worse may result in loss of life. Meeting the requirements of the contract is not enough, the product or service that was promised in discussion should be delivered. We want contractor program managers to fill in the gaps and not argue about contractual terms. Contractors can increase their chances of winning contracts and increasing profits by demonstrating performance and codifying it consistently in metrics like EVMS and TPMs and offering warranties. Realistic Marketing and Budgeting. Contractor business development folks and engineers or scientists should avoid false optimism. The marketing people and those designing the product, system, or service need to be on the same page. Sometimes one or the other sells the program with unrealistic funding estimates and reliability problems. Matured Technologies. System Development and Demonstration (SDD) is where most development dollars are spent. The military-industry relationship needs to structure robust SDD-readiness phases to accurately predict realistic SDD phases. Contractors should do early wind tunnel tests and instrumented captive carry flights to demonstrate technologies so the technologies are mature by Program Decision Review. Flexibility. The government faces a challenge when predicting what will be needed for the next war. Variability increases the complexity of management decisions in many ways. Hence contractors need agility to surge or cut production and respond to changing war needs. Lessons from Transformation and Expectations There is a plethora of acquisition transformation and layers of customer expectations to satisfy. As cumbersome as the governmental “Big A” acquisition processes are, acquisition transformation has gone around the proverbial block a few times. There is not much difference in the intent of the original 1969 Packard Initiatives and the recommendations of the 2006 DAPA project report. The initiatives are clear about what is needed, but rarely realized. Both reports recommend specific OSD involvement, investment in development and demonstration, risk reduction through competition, and stabilization of cost estimates and funding. Even the latest memorandum from the acting Under SECDEF directs “two or more competing teams producing prototypes through Milestone B” to combat SDD technical problems.43 If we continue to be disappointed or unable to achieve those expectations in the field, leaving potential danger for the warfighter; perhaps a change in who has authority over military acquisition should determine when and what requirements are met. The warfighters through the requirement makers need to have a more constant and consistent voice—state the requirements clearly, remain true to them, and do not change them to maximize chance of success. It comes down to ends, means, and ways. The ends are the expectations, the means is transformation, and the ways start with avoiding the (GAO’s) Seven Deadly Sins and meeting expectations. Understanding the source of variations that have contributed to expectation disappointments in the past presents the opportunity for managerial action to control them in the future. Chapter 3 JDAM: Breaking Paradigms and Staying the Course If we couldn’t make reform work with JDAM, with a real military weapon, then reform just wasn’t worth doing. — Bill Mounts, Office of the Secretary of Defense, 199444 The Joint Direct Attack Munition (JDAM) is a low cost “strap-on” guidance kit that converts existing unguided ballistic bombs, like the Mark (Mk)-80 and Bomb Live Unit (BLU)-100 “dumb” bomb series, into “smart”, accurate, all-weather weapons for most Air Force and Navy combat aircraft.45 The JDAM kit consists of a tail section with integrated aerodynamic control surfaces, a stabilizing strake kit, and an integrated inertial navigation system (INS) coupled with a Global Positioning System (GPS) receiver giving the bomb an unclassified range of 15 nautical miles with an unclassified accuracy of 10 meters circular error probable.46 Over 90 percent of the bombs dropped in Desert Storm were “dumb” bombs. Although the news showed combat aircraft using some laser and TV-guided weapons; smoke, dust, and cloud cover limited the employment of precision guided munitions. To make precision all-weather bombing a reality, separate Air Force and Navy research and development programs merged to form JDAM in 1991 as an Acquisition Category (ACAT) I-D program. This required JDAM to report to the Under Secretary of Defense for Acquisition, Technology, and Logistics (AT&L). This chapter will retell the JDAM development story and then tell the relatively untold story of how the JDAM program was sustained for another decade. For companies and organizations to be successful, Jim Collins argued in his book Good to Great: Why Some Companies Take the Leap that you have to get the right people, in the right seat, on the right bus, headed in the right direction. Then after you confront the brutal facts of your company’s situation, you have to decide what your company is good at and do that in the very best way.47 Throughout this chapter, examples of effective leaders building teams and developing and executing their strategies exemplify Mr. Collins’ observations of the type of behavior great companies exhibit. According to Mr. Collins' it is necessary to decide and then do what you are good at. Examples of this will unfold in this chapter and be carried over to the Small Diameter Bomb program in the next one.
In order to prove a low-cost, low-risk IGS/GPS solution to industry, a pre-JDAM look-a-like weapon went through an Operational Concept Demo (OCD) between January 1992 and April 1993. OCD HIGH GEAR was a small, quick reaction, operations orientated program supported by General Ron Yates, Air Force Materials Command commander and General Michael Loh, Air Combat Command commander. HIGH GEAR built six weapons and launched five weapons through weather to within a 5.5 meter accuracy.48 In April 1994, JDAM transitioned to a two-phased engineering and manufacturing development (EMD, known today as System Development and Demonstration, see Chapter 1). EMD-I focused on reducing Average Unit Procurement Price (AUPP) and manufacturing risks. McDonnell Douglas (MD, merged with The Boeing Company in 1997) competed against Martin Marietta (MM) for 18 months during EMD-I in order to be selected for EMD-II (fabrication, extensive testing and evaluation in preparation for low-rate initial production) and earn production contracts for 40,000 Mk-84 and 83 and BLU-109 and 110 tail kits worth $1 billion.
One of Mr. Collins’ observations on effective transformation is to first have the appropriate people in the right place in the organization, then figure out what needs to be done differently, and then decide how to implement change.49 General Joseph Ralston (former Director for U.S. Air Force Operational Requirements) called on Terry Little (an Air Force civilian who previously worked for General Ralston on classified defense projects) to lead the JDAM Joint Program Office (JPO, although the Air Force was designated executive agent) in early 1993. Mr. Little had the reputation for being “a firebrand, an agitator for change, and for pushing entrenched government processes to the breaking point.”50 Likewise, Mr. Little built a team of change agents that had “the energy and ability to think differently.”51 He conducted a two-week seminar on acquisition reform in the summer of 1993 at Eglin Air Force Base (AFB) and eventually took his team to visit The Boeing Company (Boeing) Commercial Aviation, Motorola, and Apple to compare DoD’s business practices to commercial industries’ practices. Their DoD-Commercial comparisons are depicted in Table 3.1.
Table 3.1 DoD and Commercial Comparison52 Integrated Product Teams (IPTs). One of the top commercial benchmarks was having collaborative, long-term producer-customer-supplier relationships. Mr. Little not only formed executive and working integrated product teams (E/WIPTs), but he had two separate teams of Air Force “helpers” that were separately assigned to MD and MM. The “helpers” were not auditors or supervisors, but part of the team that became emotionally wedded to their assigned company to win the roll-down selection for EMD-II. In MD’s case, Charlie Dillow, MD’s PM, and Colonel Joe Shearer, the JPO lead MD helper, acted together as equals. The government team members ended up spending more time at their contractor locations than at the JPO at Eglin AFB. When working at Eglin AFB, contractor team helpers were “fire-walled” from each other’s work and the JPO’s source selection team was also fire-walled from them. Even test, logistic, and finance functionals from the Office of the Secretary of Defense (OSD) participated in IPTs. In the past, the JPO put their strategy together and sent it to the Pentagon for review. It would take several weeks for each OSD functional to call the military program manager (PM) and ask questions. For JDAM, OSD functionals worked with the services’ staff on a WIPT to draft and review a single acquisition management plan (SAMP). The WIPT submitted SAMP recommendations to the overarching IPT (OIPT) for review to pass to the Deputy Undersecretary and Undersecretary of Defense for AT&L for approval. Most of the work was done by action officers negotiating compromises at the WIPT level and selling the plan to the JDAM’s OIPT chair. During this process, the OSD and JPO agreed on down-select strategies and FAR/DFAR waivers to allow the JPO and Mr. Little incredible flexibility.53 More Effective Leadership. Six months into EMD-I, Charlie Dillow, MD’s JDAM PM, knew that MD’s current JDAM $28,000 price tag was too high to win the $1 billion JDAM contract to produce 40,000 tail kits. He was motivated by thousands of MD layoffs caused by cancelled programs like the $3 billion A-12 and lost competitions such as the recent $1.5 billion Tomahawk production contract. In the past, “business as usual” would use EMD-I funding to build the best technical performing product supported by lots of technical reports. Mr. Little, however, wanted contractors to spend EMD-I funding to buy down risk by designing in affordability, testing components, flight testing the system, and reducing the overall life cycle cost. The new source selection criteria weighted production lots 1 and 2 AUPP and past contractor performance pretty heavily.54 Together Mr. Dillow and Colonel Shearer learned on the fly to develop and implement a new strategy to drive down costs within 12 months. Luckily, MD was going through an organizational change that combined MD’s aircraft and missiles divisions. The aircraft division had strong engineering stove-piped organizations, while the missiles division was known for innovation and being risk takers. To combine the two cultures, MD introduced change sponsors and agents. Mr. Dillow’s supervisor, Dave Swain, Deputy General Manager of New Aircraft and Missile Products, and Mr. Swain’s supervisor, the General Manager, were two change sponsors. Within Boeing, JDAM had senior executive support to break paradigms such as designing “Cadillac” products as opposed to “affordable” products. Even Charles H. Davis III, a MD Supplier Manager, thought JDAM broke stove-piped barriers, “It (JDAM) truly was defined as a product team, and … we did a lot of working around a table to get the best product we could.”55 This transformation may not have been possible without the right people mobilizing the talent of others to achieve the goal. DAPP, There’s a Waiver for Every Rule Two weeks after the EMD-I competition began in April 1994, OSD designated JDAM as one of five Congressionally mandated Defense Acquisition Pilot Programs (DAPPs). As a DAPP, JDAM was provided legislative authority to implement provisions of the Federal Acquisition Streamlining Act of 1994 (see Chapter 2). DAPP facilitated the use of commercial off-the-shelf items and practices, allowed contractor configuration control, enabled electronic commerce, streamlined contracting processes, minimized data requirements, and provided statutory relief. Statutory relief came in the form of expedited waivers from Federal Acquisition Regulation (FAR), Defense Federal Acquisition Regulation Supplement (DFARS), and DoD 5000-Series regulations. This relief allowed the JDAM JPO to re-strategize EMD-I to make it more commercial and streamlined the milestone review process and reporting procedures. The OSD/JPO SAMP agreement gave Mr. Little waiver authority to all FAR/DFAR, minus any statute or executive order. The program received 25 FAR waivers, 25 DFARS waivers, and almost a blanket DoD 5000-series regulation waiver.56 Waivers allowed small U.S. based companies to be subcontracted that otherwise would not have been because required price data justification was too cost and labor intensive. Waivers also allowed MD and MM to have Class II change authority to approve component configuration changes as long as form, fit, and function remained the same. In return, the JPO wanted the contractors to offer a 20 year warranty to promote quality within their designs. Mr. Dillow said, The crowning jewels of the JDAM EMD-I strategy was the contractor Class II authority and the 20 year warranty. Although the government allowed the contractor to do technical insertions to improve performance and ultimately make more money over time, the JPO felt that their product to the warfighters was protected with the 20 year performance specification warranty.57 Also critical to Mr. Little’s price-based acquisition strategy was the Truth in Negotiation Act (TINA) exceptions the strategy operated under. JDAM would not have to show and prove its cost accounting because there was adequate price competition and most of the parts were capable of commercial use.58 These FAR/DFAR waivers and TINA exceptions could not be assumed and had to be fought for on future production lot contract negotiations--the life-blood to the successful JDAM acquisition strategy. Table 3.2 shows more JDAM waiver metrics.
During President Clinton’s “peace dividend” defense budget slashing years, it was no surprise to Mr. Little that General Merrill McPeak’s (Air Force Chief of Staff in 1993) top priority for JDAM was cost because of the large inventory of “dumb” bombs that the kits were
Table 3.2 JDAM Waiver Metrics59 going to be strapped upon. Knowing original estimates were as high as $68,000 per tail kit, Mr. Little boldly told General McPeak that JDAM would cost $40,000 per kit. General McPeak demanded that $40,000 per be a ceiling, not a goal. Five months into EMD-I, MD proposed a $28,000 AUPP for 40,000 JDAM kits. By August 1995, with one month to go in EMD-I, MD planned to submit a proposal for well under $20,000 per kit.60 MD was able to do this with a unique commercial pricing strategy with a relatively flat learning curve where the government would save lots of money up front and the contractor would gain profit in later production years as long as affordability was continually designed into the product. |