August 19, 2014
On the Arrogance of Should-Cost
Better outcomes in military procurement still await a better-educated workforce.
By James Hasik
In April 2010, then-Under Secretary of Defense Ashton Carter promulgated the first version of his Better Buying Power concept, which mandated (amongst other things) "should-cost" reviews for major procurements. The strategy aims to determine what a weapon should cost, if the government and the contractors work together to eliminate unnecessary expenses; the alternative is to simply pay whatever the contractor bids, and thus what the weapon will cost in the absence of any intelligent follow-up. The initial memorandum was rather short on details for implementation, so ever since then, the way forward with this seemingly sensible approach has been subject to considerable debate. In a commentary yesterday in Defense News, Christian Hagen of consultancy A.T. Kearney endorsed the Pentagon's ongoing enthusiasm, but emphasized three inputs as critical to success: capable people, reusable processes, and pilot programs. All are important, but finding good people may be the salient issue.
Of course, it's not as though we haven't known this for decades. Back in April 2012, Daniel Gouré of the Lexington Institute wrote an essay challenging the value of the whole should-cost concept. While "new," he agreed, it's also "rather traditional in nature". As Defense Industry Daily noted at the time, the methodology was reviewed in Air University Review way back in 1972. The Defense Acquisition University has a briefing on some of the relevant literature, which notes that the technique "was popular in the 1970s and 1980s". That's rather like disco and techno-pop.
Also in 2012, RAND produced a report on progress with should-cost since the 1980s, concluding that "there is a lack of evidence that should-cost reviews save money compared with other forms of contract pricing and negotiation, as well as a lack of evidence about key factors or circumstances that determine the success of should-cost reviews." Naturally, a September 2011 article in Defense Acquisition Research Journal argued that this new kind of should-cost is totally different from that old kind of should-cost, and thus should be pursued.
Fairly, this round is new, and should-cost techniques are well known in more commercial sectors of industry. So is it working this time? In Defense One back in April, now-Under Secretary Frank Kendall offered a qualified yes. We have, after all, case evidence that when done right, should-costing can save a great deal of money. In Defense AT&L magazine just last September, the Navy's MH-60 helicopter program reported that the office expected to save $650 million from its should-cost efforts. The keys? A "small but talented" team from the government developed strong relationships with the prime and the subcontractors, and shared lessons learned.
If this seems sensible, and almost obvious, remember that the problem is one of intellectual production capacity. As Kendall told Defense News in November 2012, improving the system means improving the qualities of the people in the system, and that can take a long time. The quality of the US military's acquisition corps is uneven: there are some fabulous officials, and there are some who haven't gotten the memo, who haven't mastered the skills needed to negotiate complex contracts, or who are just plain frightened to exercise judgement in their over-regulated jobs. Four years ago, Secretary Ray Mabus noted that "rebuilding the acquisition workforce" was one his five priorities for managing the Navy's materiel. For years on, that work is still unfinished, so uniformly impressive outcomes may have to wait.
James Hasik is a senior fellow in the Brent Scowcroft Center on International Security.