Busting the Navy 'Trusts'

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During the past five years, the nation’s defense p^r°" curement system, arguably the world’s largest p^u)' chasing department, has undergone a dramas transformation in which billions of taxpayers’ dollars ha''⁶ been saved and new levels of cost-efficiency achieved- Yet, according to newspaper headlines, defense procure" ment is a major source of fraud and corruption, in whi^cl greed and malice override taxpayers’ and the nation’s >ⁿ terests. It is unfortunate that accounts of abuses over shadow the landmark progress in our nation’s procurenie¹¹ process—the result of the tireless efforts of hundreds o thousands of conscientious people in our defense estau

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five years the Navy has blown the lid off of i^ts procurement system of sole-source contracts- Millions have been saved annually from com' petitively bid contracts, including the Standard missile and the Aegis cruiser, the latter saving $282 million in 1986 alone. Nevertheless, problems r^e* main, and the Bush administration has its work cut out fixing the scandal-torn defense procurement system-

lishment and in the private sector.

On the other hand, improper conduct in the public private sectors must be dealt with. Today we see scam on Wall Street and in the nation’s commodities markets- and charges of impropriety in the crippled savings-and loan industry. But nothing has aroused the public m°^re than scandals concerning our national defense. Becau^se our nation’s security is at stake, the public has a right t° expect the highest standards of conduct in defense P^r<^ curement. Thus, despite the fact that impropriety the exception rather than the rule, vigorous correct!' efforts are required.

Recent improvements in our defense procurem^eIJ system should be const ^ ered only the beginn'¹^ of a continuing effort derive the highest q^ua. ity weapon systen¹^ and services at ¹ best prices for °^u nation’s defen⁵⁶'

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ducting for goods and services. In effect, we had monopo- \ '

chang

gmg the manner in which we did business, and

^ePartrnent management. It soon became clear that a th^Pcihive bidding system would, indeed, be installed °^ughout the Navy procurement establishment desnite dislocations, complexities, and imperfections.

^ ; ^0rdnance arsenals.

► a! P^roPosal.

^0re than $20 million was saved on the modification of

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i trainer and awarding the contract competitively *ne F.p.-l r>_:          ,_„I                                                                                                                                           _____________________

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^ EP-3 Orion patrol aircraft conversion contract was

*han half of the budget estimate.

^ne hopes that in the process of addressing wrongdoing ^We do not overcorrect and undermine the progress we have in making the overall defense procurement system ^ril0re efficient.

As the first Competition Advocate General for the U. S. ^avy, I had the privilege of helping establish competitive Wding in what had been a sole-source defense contract- ^ln§ system. Although enormous dollar savings have ac­^Crued, problems persist.

► Switching from sole source to competitive bidding on the Model-5307B tracking receiver resulted in a 48% cost reduction.

► A projected savings of $57.3 million was achieved by purchasing new commercial transmitters for the Naval Telecommunication Command rather than overhauling existing equipment.

► Competitive bidding on canisters for the vertical launching system resulted in reducing costs to $50,000 per unit (versus $80,000-100,000) for a minimum savings of $50 million for remaining canisters still to be purchased in that fiscal year.

These are but a few of literally hundreds of major sav­ings accrued in all areas of naval procurement as a result of competitive bidding. Moreover, we learned that there are few, if any, areas in which competitive bidding cannot apply. The key is to apply competitive principles intelli­gently and to avoid competition when it does not make good business sense.

The Trident Test

In 1985, competitive bidding was clearly working, but many still believed that it applied only to belt buckles and spare parts, not to major contracts and certainly not to weapon systems. We needed to change that perception. Though our achievements were significant, it was clear that unless the weapon system “barrier” could be hur­dled, our prospects for major savings were limited.

When it was suggested to Secretary Lehman that the Trident program could be bid competitively and thus could provide the landmark breakthrough we needed, he gave his full support despite the fact that the notion of competi­tively bidding the Trident would be considered a travesty by some in the Navy organization. Lehman was convinced that free enterprise tactics helped sort out difficult issues, and that when encouraged to do so entrepreneurs plan bet­ter than bureaucrats.

Buoyed by Lehman’s support, we set a course to com­pete Trident construction. As expected, it was fought in Congress from the start, particularly by the contingent from Connecticut and other parts of New England; Tri­dents were all built in Groton by the Electric Boat Division of General Dynamics. No help was forthcoming from some of the Navy management staff, who were outraged and threatened. To the credit and professionalism of those in submarine program management, we got a chance to show that the process could work. When we announced that competitive bidding was required for Trident con­struction, we were supported by both Secretary Lehman and Assistant Secretary of the Navy for Shipbuilding and Logistics Everett Pyatt.

Notwithstanding numerous complexities and continuing pressures, succeeding Competitive Advocate Generals and Navy procurement executives have held this ground, and Tridents were competitively bid for the first time in 1988. Millions of dollars have been saved, and the myth that competitive bidding is not applicable to complex major weapon systems should be dispelled.

Today, even though struggles over ownership of propri-

etary data persist and sole-source suppliers remain strapped to their hand grenades in last stands, it is only a matter of time until competitive bidding influences most purchases made in our defense procurement system. Hav­ing to bid competitively for what had been locked-in sole- source contracts has been painful for a number of suppli-

ers. They had to adjust their overhead structures and take a fresh look at how they do business. They were forced to make hard decisions.

Competitive bidding has not caused contractors to with­draw from the defense business, as some predicted. Nor has competitive bidding and the corresponding need to invest in the bid proposal process frozen out smaller firms with limited resources. Public hand-wringing aside, no major suppliers have withdrawn from defense contracting owing to the changing economics of doing business with the government. And more smaller companies are supply­ing the government than ever before.

There have been some instances where inequities had to be worked out in the transition from sole source to com­petitively bid contracting, and some tax and investment credit issues still require corrective action. There can be no doubt, however, that competitive bidding has signifi­cantly improved the nation’s defense procurement system.

Though competitive bidding has revolutionized defense procurement and saved billions of dollars, it is only one part of the effort to increase efficiency and cost-effective­ness in the defense sector. In addition to purchasing bil­lions of dollars of goods and services, the Navy produces goods and services. In 1988, more than 200,000 employ; ees worked on everything from ship repairs and aircraft modernization to fixing circuit breakers and running ³ dairy farm. Anyone who believes in competitive free en­terprise principles has to question the cost-effectiveness of internal production (other than for mobilization base con­cerns) versus contracting with competing private interests- The experience of nationalized and socialized economic systems is clear evidence that they are poor directions for³ free society.

For example, we have evidence that small contractors along the waterfront can repair gun mounts faster and a' less cost than the large Navy inland activities in Kentucky and Indiana. Several years ago, the backlog on repairs ot the main gun mounts for frigates was interfering with the redelivery of ships in overhaul to the fleet. The Navy took a chance and contracted with a private firm to work on th^e 5-inch/54-caliber gun on board the USS Bagley (Fb" 1069). The gun received extensive repairs and was deliv­ered ahead of schedule for about 60% of the normal cost- Expensive transportation costs were also avoided. During sea trials, the gun fired 80 rounds in rapid fire with n° problems, and there were no call-backs during the war­ranty period. Here, using the private sector to a greater extent just makes common sense.

While the government may want captive arsenals am shipyards, and certainly congressional pressures to retain them are ominous given the gravity of the federal defi^clt and the need to reduce spending, it appears to be irre­sponsible to ignore the opportunity for savings in mam power and fixed costs. Thus, these areas are worthy ⁰ periodic examination to deter the natural propensities ⁰ bureaucrats to grow their own organizations.

How much the government could save by privatiz^[1]^ services is difficult to estimate, but it could amount t 50,000 fewer people, with an immediate and longer-term trickle-down effect on future budgets probably totallif- several billion dollars in additional savings.

Improving the Process                                                  _

Where there’s smoke there’s fire, and a few of the cn¹¹ cisms of our procurement process have some validity; Some of the harshest criticism of our procurement proce^sS in the media comes from comments originating fro'¹' within the military and from the suppliers. The folloWHC areas of concern must be addressed.

Consultants: Although a consultant’s registration art^lS mandatory, let us not be so naive as to suppose that it is³¹¹ end in itself. Consultants are very much needed and prob³' bly are not used fully. A substantial amount of product!" input on specifying, engineering, and quality assurance for example, could be derived from consultants. G°° companies ask for second opinions and seek sound advi^L’^e from outsiders to balance inside staff, which many tin¹^ has its own axes to grind. The conflict of interest issue ¹ a difficult challenge. It will probably require harsh action

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\.\\£^Ulr‘ⁿ^ Minds: The main problem with the media is .manner

in which the government deals with them. ble^⁰¹¹⁶ ’ⁿ P^rocurement sector should feel accounta- n$ th° P^u^*^c f°^r their actions and should see the media tor^{06 a}§^ents of the public interest. The procurement sec- '^v°uld be well advised to eliminate all barriers to free (jjj. P^er> media access. This would generate more credi- ab|^1[^ ^3nd better information to the public. We would prob- > save several million dollars in staff and time now _Cu . ^ed in attempting to manage—or thwart—the media’s (j °^Slty- Restricting or rationing information creates a just'f⁰^ *ⁿ hself. We also spend too much time and money _are kmg our position to so-called reform groups, which

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,° ^deal with consultants, acting in effect as double agents, ^efore the “fear of God” is instilled.

. Multi-year Budgets: Longer-range budgeting could pro­vide for

more efficient investment planning. A one-year ^Ud§et horizon imposes enormous costs and needless ^^aste on the system. We clearly need a two-year budget ^at coincides with congressional terms of office. Congress: Our politicians’ constitutional role in the sys- ⁰¹ of checks and balances is beyond dispute in the broad ^nse- However, some new ground rules need to be ^Uck. Each year the military spends millions of dollars ^ar|d many man-hours just preparing for committee hear- ^lngs and congressional visits. And their political/constitu- ®^nt concerns cause additional waste and impede the effi- ^Y of military decision making.

fogram Managers: There are just too many program ^anagers with too little authority and too few of the neces- ->5y resources to do their jobs with maximum efficiency, is is symptomatic of too much government and proce- ^fe in the procurement process. People left in a vacuum h too little real responsibility will invariably fill the 'd with busy work, which then insidiously invades the °f the system, adding needless cost and confusion. We ^st emphasize technology and the importance of engi- rs being among the leaders of procurement decision _e v'^ln§- However, there are not enough resources to treat ¹¹ Program as a high-priority special project. If we some zero-based budget principles to staffing, we soon see how much more could be done with less.

_ave^ready ^t0 tear down the old system but seem never to y any hard suggestions for building a new one. j_n ^echnology: The procurement establishment should be C^nt pursuit of new and improved technology. In- n₀j y. however, is better equipped to develop such tech- _cha°Sy- The procurement system should be leveling the e_nte ^en§es, asking the questions, then relying on private 5]I Trise to redefine the state-of-the-art competitively in anJ?^r°^duct development. Once it is clear that there is • ^e’ⁿcentive, we will see the pace of change quicken. rti]_e, ^s knock off the games—absurd tests and forbidding b_ettg ^d®^signed to discourage new ideas for doing things ity' Getting back to basics” sounds good, but in real­ly ^{e ne}w is usually better than the old. We would still be

^and Navy leaders had not been forward thinking. ^^l(nnati°^n: Getting up to date on computerized infor- ⁿ systems is the greatest single barrier to continued

gains in efficiency in the procurement process. The fact that we still rely to a large degree on a paper-based pro­curement system is ludicrous. Internal automation is the most attractive investment opportunity we have. It will begin paying off almost immediately, in reduced over­head, faster and better decision making, and higher quality goods and services. We need to stop pasting together con­tracts.

Quality: We can never take quality for granted. Lofty corporate titles and impressive uniforms aside, quality is an outgrowth of deep personal caring and knowing what we are doing.

Compliance: If we simplify the lines of communication, we will save money and headaches. Good rules need to be enforced. We need shorter, easy-to-read contracts.

Procurement Training: Notwithstanding some increases in internal training programs, there is at times a gross mis­match between the preparedness of our procurement staff and the outside vendors who covet their business. To a lesser extent, the same could be said about many program managers and many of the military’s engineering and tech­nical specialists. If we reduce the number of functions carried out within government, we should be able to afford intensified training to sharpen the expertise of those func­tions that are critical to the success of the procurement process.

Technical skills, negotiating skills, expertise in specify­ing, and assessing proposals—these are just a few of the areas in which we should concentrate. Creating a more level playing field between our procurement staff and out­side suppliers will more than pay for itself. The Defense Department must recognize that a business school for de­fense management that ranks with our nation’s top techni­cal institutions makes good sense.

Thoughts for the Bush Administration

The well-publicized events of the past year suggest that we should study the nature of the procurement process to see how well that process performs and to determine if the objectives of the system are indeed being fulfilled. The system is being placed under undue stress and merits im­mediate attention and relief.

There are no fast fixes. Improvements will best be made from a disciplined inspection of the system’s fundamen­tals. Common sense calls for a procurement process that is prompt, equitable, and administered with a firm hand that allows room for good judgment. Nevertheless, there will be some bad apples, and impropriety will always be an issue.

Let the career professionals do their work, and take time to give them a well-deserved and rarely awarded pat on the back. The liberties we seek to secure for ourselves and future generations deserve no less.

Rear Admiral Platt, the Navy’s first Competition Advocate General, is president of Foundation Health Corporation’s government division and a member of the board of directors of SPD Technologies and the Sparton Corporation.