Q1: Why did House Armed Services Committee chairman Mac Thornberry release a stand-alone acquisition reform bill on March 15, 2016?
A1: Chairman Thornberry has been working for several years on developing recommendations for defense reform. He has made clear that he envisions defense reform as a multiyear effort, and the bill released this March follows on his decision to release a stand-alone acquisition reform bill in March 2015, which was later incorporated into the National Defense Authorization Act (NDAA) for Fiscal Year 2016. Chairman Thornberry has indicated that he has chosen to introduce stand-alone legislation in order to solicit feedback from other members of Congress, the Department of Defense (DoD), industry, and other interested observers prior to the markup of the annual defense authorization bill.
Q2: What are the bill’s main objectives, and how does it pursue these objectives?
A2: The bill pursues three main objectives. The first is to require that DoD structure major defense acquisition programs (MDAPs) to deliver capability incrementally over time, beginning with delivering a minimum acceptable capability and incrementally adding additional capability through improved system components. The bill supports this objective by requiring use of open design principles, formally known as modular open systems architectures, for all MDAPs. Open design approaches are required to be considered in formulating the military’s requirements for the program. They are made part of the early stage analysis of alternatives that narrows down options before a formal program is started, included in the acquisition strategy for the program, and included in the request for proposals that solicits industry bids. The bill requires DoD to work with industry to establish standards-based interfaces that allow system components to plug and play across weapon systems and use standards that are commercially based to the maximum extent practicable. In support of this, the bill modifies the intellectual property statute in Title 10, United States Code, to provide for unlimited government rights to all interface standards used on defense systems.
The second major objective of the bill is to encourage the prototyping of new technologies and to separate, to a large extent, the maturation of new technologies from the effort to design new systems as part of major defense acquisition programs. The bill accomplishes this objective by requiring DoD to use mature technologies for design elements that are integral to major system platforms and to separately develop and mature technologies for major system components through prototyping. The bill requires new reporting and oversight on prototyping including the creation of prototyping oversight boards in the military services, the development of three-year strategic plans for prototyping, and semiannual reports to Congress. Prototyping efforts are generally restricted to three years duration and to cost no more than $25 million. The bill creates authority to move quickly into production on prototypes that prove successful by streamlining contracting and creating special transfer authority to provide funding.
The third major objective of the bill is to return certain authorities relating to major defense acquisition programs to the secretary of defense. Much of this authority was shifted to the military services in the National Defense Authorization Act for Fiscal Year 2016. Under the bill, the secretary of defense is required to establish two major program targets early on, including a target for the unit cost of the system and a target for when the system will achieve initial operational capability. In addition, the under secretary of defense for acquisition, technology, and logistics is required to perform a technical risk assessment prior to major program milestones. The milestone decision authority must demonstrate that the program is adhering to the secretary of defense’s targets in granting milestone approval. However, the bill also limits the secretary of defense’s ability to keep milestone decision authority within the Office of the Secretary of Defense for joint programs to programs begun before October 1, 2019. Lastly, the bill requires additional reporting to Congress after each major program milestone.
Q3: What do these proposed changes mean for industry?
A3: The proposed changes will create winners and losers in industry and are likely to receive a mixed reception. Industry has largely embraced open systems approaches to acquisition, and they are likely to similarly support that aspect of this year’s bill. However the shift toward incremental acquisition approaches is a significant change to current policies. Prime contractors whose business models focus their value proposition on the tight integration of sophisticated subsystems and the development of cutting-edge technologies will likely have to modify their business approach substantially if this bill is adopted. Prime contractors who focus more on providing systems that can rapidly swap subsystems on and off their platforms and subsystem providers may see their business models enhanced. However, the limits on the size of prototyping programs could prove very constraining for those companies that develop high-end system components, such as advanced electronic warfare systems.
The provisions giving DoD unlimited rights to all interfaces used on defense systems are likely to prove unpopular with industry across the board. Industry will be concerned about how the boundaries of those interfaces would be determined, and commercial firms in particular may be turned off by the potential loss of intellectual property. While industry didn’t take a clear stand on the transfer of milestone decision authority in last year’s bill, they were mildly positive on the potential for reduced bureaucratic overhead this change implied. The provisions in this year’s bill would recreate some of that overhead, as well as impose significant new reporting requirements to Congress.
Q4: Where will this bill go from here?
A4: This standalone acquisition bill will be rolled into the National Defense Authorization Act for Fiscal Year 2017 during the House Armed Services Committee markup in May and then will proceed to conference with the Senate. In all likelihood, the Senate will have a very different proposal for defense reform generally and for acquisition reform in particular. This will set up a lively conference debate. While both committees will seek to complete conference prior to the November elections, the NDAA may once again get caught up in issues such as the broader budget debate and arguments over detainees that preclude enactment into law until after election season has passed.