Can the Defense Industry Respond to the Reagan Initiatives?
- Can the Defense Industry Respond to the Reagan Initiatives?
Jacques S. Gansler is Vice President of The Analytic Sciences Corporation (TASC), a former Deputy Assistant Secretary of Defense (responsible for Material Acquisition), and the author of The Defense Industry (Cambridge, MA: MIT Press, 1980).
Footnotes
1. "Analysis of Critical Parts and Materials," December 1980, by The Analytic Sciences Corporation (TASC), for Air Force Systems Command.
2. In a recent interview (in Fortune, November 2, 1981, p. 112) the head of Rockwell's aircraft group in commenting on the potential problem of hiring the workers for their anticipated (renewed) award of the B-1 bomber said he would be able to get them if the money were right. "It will be expensive," but the taxpayer will pick up the bill. This, of course, assumes that the other defense firms (where these skilled workers now are employed) won't simply offer more—and on and on. Since almost all of these contracts are awarded to sole-source producers (e.g., Rockwell for the B-1), the increased labor costs are simply passed on to the government.
3. J. S. Gansler, "Let's Change the Way the Pentagon Does Business," Harvard Business Review, May-June 1977.
4. J. S. Gansler and L. W. Cox, "Evaluating the Impact of Quantity, Rate, and Competition for Production of Weapon Systems," Concepts (The Journal of Defense Systems Acquisition Management), Fall 1981.
5. Traditionally, whenever there has been a suggestion for more competition in defense procurements, it has usually resulted not in the awarding of two contracts for production of defense equipment (the form of real competition in the civilian world), but rather in the establishment of a "box score" for the number of contracts that Defense awards through competitive procurements. As a result, the small contracts (e.g., $100,000 scientific, engineering, and management analyses) are made on the basis of auctions for the lowest bidder. This has a variety of negative impacts. First, it frequently costs the government and industry well over $50,000 to hold each of these competitions—which far exceeds any possible cost savings. Second, as a result of funding not the best study, but the cheapest one (and often based on a "buy-in"), potential overall DoD savings of hundreds of millions, or billions, of dollars that could be realized as a result of a good, independent analysis are simply not explored. In fact, recent proposed legislation has gone to such an extreme in attacking the broad studies and analysis work—of all types (including detailed engineering analyses)—done in attempting to support defense decisions, that they are proposing to outlaw all "unsolicited proposals." This means that small research firms will be discouraged from submitting new ideas. Instead, the assumption is that good ideas are only generated by the government. Each idea will then be put out for competitive bids; and the large firms will always win them (through cross-subsidization, i.e., de facto buyins). Obviously, my hope is that if there is revised legislation in the area of increased competition for defense procurements, consideration will be given to the difference between small-dollar-value contracts (for example, under $1 million)—which should be awarded on the basis of demonstrated quality work and/or unsolicited, new ideas (e.g., studies and analyses)—and large-dollar-value defense production programs which should be awarded on the basis of a combination of low price and high quality—and awarded to multiple sources.
6. Some examples of the anticipated savings from the use of commercial items by the DoD are shown in this table:
J. S. Gansler, The Defense Industry (Cambridge: MIT Press, 1980), p. 280.
7. This modification route is the one used in defense procurement in most European countries and in the Soviet Union.
8. In simple terms, this theory states that if some conditions for the traditional free market (the "first best") do not apply and cannot be created, then creating some additional free-market conditions or moving more in the direction of free market conditions may actually result in reduced efficiency in the allocation of resources. For a more detailed discussion see R...
