British acquisition experts adopt radical procurement approaches
Ackerman, Robert K
Innovative methods include imports from the United States, shortened timelines, and newly empowered decision makers.
The United Kingdom is implementing acquisition reforms designed to produce less costly military systems faster and more effectively. These choice program innovations are being applied across the entire spectrum of defense purchases as the country revamps its procurement process for changing missions in a changing time.
This reform thrust incorporates practices from both sides of the Atlantic Ocean. Its features include a sharp reduction in and delineation of customers, early and active participation by industry, joint project teams that shepherd a program through key decision points, and greater up-front investment to reduce later costs and delays.
The most noticeable result, according to Ministry of Defence officials, will be on-schedule delivery of projects to the military, which is the reform’s central objective. Another key advantage will be faster response time to the emergence of new technologies, especially from the private sector. And, cost savings are likely to be realized through a more efficient procurement process.
Known as the smart procurement initiative, this radical acquisition overhaul is being undertaken by the ministry’s Defence Procurement Agency. This organization itself is the beneficiary of the reform movement, as it was elevated in importance to oversee a multitude of broad changes across the entire British defense community.
In the United Kingdom, acquisition comprises military requirements, procurement and in-service support. As part of the acquisition reform process, the country’s defense procurement executive became the Defence Procurement Agency in April 1999. This placed it under the secretary of state for defense and allows increased staffing flexibility.
Many of the initiatives impelling these changes came from the shift in government when Tony Blair was elected prime minister in May 1997. The administration launched a strategic defense review, published last year, that revealed a pattern of cost overruns averaging 8 to 10 percent and schedule overruns averaging 36 months on major projects.
These findings in turn spurred a series of studies examining procurement methods. This generated a list of new tools for smart procurement, including more of a “whole life” cost approach to programs and greater flexibility for requirements management. A second review stage examined the acquisition organization across the entire department.
Several factors drove the need for procurement reform, according to British government officials. In addition to cost and time overruns, the primary role of the military changed dramatically with the end of the Cold War and the collapse of the Warsaw Pact. The country’s armed forces, instead of gearing up to defend against a wide-scale coordinated aggression on land and sea, now face missions in varied environments that can feature a range of threats. And, vital electronics technologies needed to maintain force modernization are emerging rapidly from the commercial sector.
Officials examined active defense procurement approaches such as incremental acquisition and technology insertion as well as new commercial techniques. One pursuit involved firm-price contract terms lasting up to five years. These terms would contrast with traditional agreements featuring costly price clauses that provided automatic increases linked to specific inflation indices. Some of these indices grew at a faster rate than the general retail inflation rate or even the nation’s gross domestic product, rates of growth that defense spending never exceeded over the past decade.
Simon Webb, smart procurement initiative implementation team (SPRINT) leader, participated in this review process and in issuing its recommendations. Webb brought with him experience gleaned as a United Kingdom defense representative in Washington, D.C., during a time of acquisition reform. Active in the U.S./U.K. joint strike fighter program, he witnessed many U.S. initiatives such as integrated project teams, simplified processes and new contracting techniques. He brought some of this expertise back to the United Kingdom, building on lessons learned across the ocean. The result was some “quite radical new ideas” for the British defense procurement reform. The design of the ministry’s radical approach passed muster in a Rand Corporation red team study, and it already is in the process of saving about 2 billion ($3.1 billion), according to Webb.
The first of these radical new ideas is integrated project teams, or IPTs. The new approach differs from previous efforts, including those in the United States, by having both a procurement manager and a requirements staff, logisticians, finance officers and contracts personnel. Instead of being representatives of other organizations, these officials are under the line management of an individual project team leader. Ministry officials decided against grouping representatives into a committee, opting instead for a more cohesive structure. Industry representatives are part of the IPT, except during competition phases.
The team leader oversees the organizational budget, writes staff appraisals and vetoes their selections, if necessary. This individual, who could be military, government civilian or industry, is selected through a competitive process and serves for four to five years. This could prove detrimental to military personnel careers, but the ministry allows their service to promote them during their IPT leadership tenure. Any industry team leader would need to leave his or her employer to assume IPT leadership as a contract government employee.
The ministry began with several pilot IPTs, including the Royal Navy’s new aircraft carrier project. Leadership for this team was advertised for external competition, and the original 90 applicants were winnowed down to 10 finalists-half defense civilian and military, half defense industry. The ministry is aiming for a range of participants from diverse origins to generate input from new blood as well as promote better relations between the ministry and industry.
Capability working groups will be established during early IPT stages. These groups will examine new threats, technological opportunities and optimum new equipment life cycles. Industry will participate actively in these groups, which will initiate actions that lead to a project’s first decision point to explore options. At this stage, more than one IPT may be active if different configurations are under consideration. For example, planners of the United Kingdom’s future offensive air system are considering options ranging from advanced conventional strike aircraft to unmanned combat aerial vehicles.
The philosophy behind this IPT/capability group approach is to invest more money in the early stages of a project to save costs throughout its lifetime. As much as 15 percent of the total budget can be spent on early elements such as operational analysis before the main investment decision-making point.
The second idea is an approach that focuses on designating a central customer. In many procurement procedures, a neutral observer might find determining the actual customer difficult. The perceived customer could be a military requirements official, a budget staff member, a defense planner or an actual equipment user. This organizational ambiguity is overcome by a ministry decision to declare only two customers for a procurement, and they would fill that role at different times.
Before equipment enters service, the customer is the joint Ministry of Defence headquarters. This constitutes a new organization that brings together military requirements and resource allocation-the budget staff and the future military programs staff. The rationale is that these personnel are essential to planning future armed forces. Despite some extensive debugging of the process, this central-customer approach is being implemented.
One key enabler may be the establishment of capability managers. They would examine the whole military capability, including communications and information system components, and perform both military analysis and resource allocation in an integrated organization. In the United States, the equivalent act might be placing all the individual service logistics officials in a central organization with the congressional budget staff and comptroller personnel to produce a single integrated plan for purchasing new equipment.
The second customer is the user who receives the equipment in service. The details of this concept are still being defined, but the customer ultimately can be the front-line command that actually uses the gear. This user would be separate and distinct from the logistics command that supports the equipment. While IPTs report to the first customer, the agency is trying to ensure that IPTs remain involved throughout the equipment’s service lifetime. This could be especially important as advanced electronics equipment and information systems require repeated technology insertion during service.
The ministry began 10 pilot IPTs in November 1998. By February, they were up and fully running with as many as 500 people. Two months later, the IPT Wave I rollout raised the number to 23 projects, including large projects such as the Eurofighter and the extensive Bowman communications program. Wave I involved a total of approximately 1,500 people, which may ultimately increase tenfold as IPTs are added.
Team members already have had an effect on some existing programs. The agency has a standing offer to split cost savings in ongoing contracts with industry. The Marconi/Boeing consortium on the Brimstone weapon, for example, developed new ideas on performing final trials. The agency’s new requirements structure allowed the companies to be more flexible in their approaches, enabling them to change procedures and save money for both the ministry and the participating contractors. In addition, the companies developed new methods of supporting the system when it enters service.
Another form of savings emerged from a team working on the future offensive air system. These experts found a way to shorten the project cycle. Other teams discovered savings in support costs by investing more funds early on frigate and helicopter projects. Even veteran equipment such as a VC-10 realized operational savings following a team review.
As many as 150 IPTs ultimately may be formed for defense projects. Most of these are conversions from existing programs, but about 15 will be new projects that begin their existence as IPTs. These new programs would include the future air-to-surface guided weapon, the future attack submarine and joint battlefield digitization. The agency’s goal is to have its entire new structure in place by April 2000.
The smart procurement effort is not limited to organizational restructuring, however. The agency is writing a set of acquisition processes that run across departments so that it can move away from separate phase-oriented rules and regulations. To reinforce this integrated acquisition management system, the agency has produced a World Wide Web– based guideline package. An intranet serves the same handbook role within the ministry.
One key element of this reform is a concept known as the acquisition stream. This concept aims to open the process to qualified military and civilian experts from a wide range of backgrounds covering many core competencies. In a related thrust, the agency is engaging in joint training with industry to familiarize all parties with acquisition elements.
The ministry also is bringing its single-service military logistics organizations into a joint organization. It will operate under a four-star commander separate from the Defence Procurement Agency. The focus of this newly consolidated agency will be delivery of logistics support to the user on the front lines.
The agency changed its approval system early in the reform process. Now, program approval is needed at only two points: the initial gateway and the main investment point. However, approval standards are tougher than before, especially at the investment point. A project will not be allowed to proceed past this juncture if it has unexplored areas of risk. Webb expects that more projects will be turned back, modified or even cancelled at that stage. The goal is to ensure that problems are solved quickly, rather than during full engineering development. The time/performance mix also is defined tightly at this point to ensure a shorter cycle.
The ministry also has raised approval levels. Now, a two– star-rank officer can approve up to a 400 million ($625 million) program, and a one-star officer can approve up to 100 million ($155 million). A default approval comes within 48 hours of a program’s delivery to the ranking officer on business days.
The biggest beneficiaries of these new acquisition approaches may be land systems. These traditionally have been procured using methods far different from the new one. Other systems, such as aerospace platforms and technologies, have been procured along lines similar to SPRINT for some time. Communications and information systems in particular will see substantial benefits (see box, page 31).
This new procurement approach can be applied to collaborative efforts between the United Kingdom and other nations. While the agency is reluctant to impose its methods on allied partners, many have expressed interest in the new system. The actual effect on collaborative programs can be mixed, however. The greater flexibility in trading cost for performance allows partner countries to reach a consensus on delivery dates much easier, for example. Also, the increased British government/industry dialog has more in common with the close partnership characteristic of many European countries with their defense industries. On the negative side, the new system empowers British officials to be more demanding of program success, especially in project performance.
While much of the United Kingdom’s new acquisition structure came from experiences in the United States, the agency deliberately omitted some U.S. procedures from its menu. The agency declined, for example, to incorporate cost-plus-development contracting on the rationale that performing planning-phase work effectively transfers the risk and establishes the needed project certainty for companies to take on the projects.
One U.S. discovery is that individual IPT projects can become stovepiped if the teams focus only on their own issues instead of on overall capability among equipment. This was overcome through the establishment of an integration function, and the United Kingdom is introducing an integration authority to ensure that projects maintain necessary connectivity to other programs. Military requirements personnel serving inside IPTs help ensure this connectivity.
The United Kingdom also did not face the U.S. problem of overcoming a bias toward military specified products. Where the United States forced a 180-degree course change to require commercial products wherever possible, the United Kingdom never had as large a number of military-specific components. It did perform some winnowing of these standards, however.
With this common origin, U.S. firms may find doing business with the U.K. Ministry of Defence easier. Webb actually invites U.S. firms to “come on over and see how it feels.” U.S. company representatives are already inside several IPTs such as the Apache helicopter project, and U.S. firms are active bidders with U.K. partners in many large programs.
Additional information on the U.K. Min- istry of Defence smart procurement initiative is available on the World Wide Web at http://www. mod. uk/policy/spi/.
Copyright Armed Forces Communications and Electronics Association Sep 1999
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