For anyone with a bone to pick about defense contracting, it's a familiar quote to cite: Back in 1961, during his farewell address to the nation, Dwight Eisenhower warned, “We must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex.“ But there's another part of that speech, often overlooked, which Jacques Gansler, former Under Secretary of Defense for Acquisition, Technology and Logistics, likes to point out: “Eisenhower went on to say that the United States could not have won the war without the industry.” It's that latter scenario that now may be upon us, says Gansler, who's been speaking lately of what he sees as a “global war on contractors.“ Only a few years ago, amid growing concern that acquisition dollars weren't being used effectively and efficiently, Gansler led a report for the Army titled, “Urgent Reform Required.“ Now, he says the pendulum has swung too far the other way. In an exclusive chat with ExecutiveBiz, Gansler explains what went wrong.
ExecutiveBiz: Two years ago you wrote a report for the Army, “Urgent Reform Required.“ Now you're calling the current environment “a global war on contractors.“ What went wrong?
Jacques Gansler: Let's start with the report. It was initiated because 90 fraud cases were being investigated in Iraq and Afghanistan. We were shocked to find how much the government’s acquisition workforce had been allowed to deteriorate in value, seniority, and experience. For example, the Army had five general officers in 1990 with a contracting background; in 2007 they had none. The Army has since set up an Army contracting command. Maine Sen. Susan Collins has a bill now on the acquisition workforce. That is all positive. However, too much emphasis is being placed on hiring quotas “” and not enough emphasis on seniority, experience, or recognition of what the acquisition workforce really is for, which is to be smart buyers.
“The concept of simply picking one company to do everything isn't capitalism, it's essentially creating monopoly socialism.” “” Jacques Gansler
ExecutiveBiz: You've also stated the White House itself is engaged in this “global war on contractors“ How so?
Jacques Gansler: I'll give you a couple of quotes, from the President: “We have turned over too much of the public mission of defense and foreign policy to private firms interested primarily in profit.“ Another quote: “The days of giving defense contractors a blank check are over.“ We're now seeing a resulting shift to insourcing that lacks specific definition of inherently governmental functions. When you insource something you basically make it a monopoly. The government does the job “” qualified or not “” whereas in the past you had the private sector operating in a competitive environment.
ExecutiveBiz: What's behind the current insourcing push?
Jacques Gansler: It's strongly influenced by government worker unions. Congress, as we all know, has been passing laws against competitive sourcing. Congress is stating that you will no longer have competition between public and private sectors “” that's clearly to satisfy the unions.
ExecutiveBiz: What's wrong with this current approach to insourcing?
Jacques Gansler: It's really a question of competition versus sole source. The government is not cheaper; the Congressional Research Center said so. So have other studies. By contrast, whenever we've had competitive sourcing, we get more than a 30 percent cost savings, on average, with higher performance, no matter who wins “” and the government most often wins. Competition really pays, and yet [the White House and Pentagon] are objecting to competitive dual sourcing of the Air Force tanker, they are objecting to competitive dual sourcing of the second engine on the joint strike fighter.
ExecutiveBiz: What would you tell the government, based upon its current approach?
Jacques Gansler: Focus on results, not inputs. In other words, don't decide beforehand who would be best to do something. Decide based on the results you get. If you get higher performance and lower costs, keep doing that. If that comes from competitive sourcing between public and private, fine. If that comes from competition between two private sector firms, fine. I wouldn't, however, use as the measure what I decide beforehand “” for example, that you will mandate a 7 percent cut in contract dollar spending. That's the kind of choice that suggests you're engaged in arbitrary decision-making, rather than efficiently and effectively satisfying the mission need.
ExecutiveBiz: Along with insourcing, we're seeing a shift toward fixed price development on high technology products. What's your take on this?
Jacques Gansler: I could go down a long list of programs where they tried to use fixed price on development programs. They show, overwhelmingly, that the cost tends to rise during that program. That's because technology changes, threats change, requirements change, opportunities to get even better systems change. I don't know of any programs in the history of defense that don't have requirements changes after the initial bid. Take the recent RFP for the Air Force tanker “” a fixed-price contract for 18 years! I'll bet you in a couple of weeks, after the sole-source award, there are going to be some changes. The winner instantly is going to have an opportunity to re-price it, and in a sole source environment they can re-price it on a monopoly basis. That’s the lesson of history.
ExecutiveBiz: What role, if any, should the government play in fostering business relationships with contractors?
Jacques Gansler: You do have to be in a business relationship. Government has the responsibility of oversight. Government has the responsibility of management “” they have to work with industry to do that in order to get the best results, and industry has to work with government to get the best results. Naturally, industry's interest is in getting higher profits and more sales. That's in a competitive environment where everybody wants to take business from everyone else. That's OK. That's the concept behind capitalism. The concept of simply picking one company to do everything isn't capitalism, it's essentially creating monopoly socialism. However, if a contractor continues to provide higher performance at lower cost, you should reward them with a follow-on contract, and they will continue to give these results, as long as the government has a credible, competitive option.
ExecutiveBiz: Looking ahead, how do you think government contracting will unfold over the next decade?
Jacques Gansler: The model over the last eight years was essentially based upon the idea of living in a rich man's world “” if you want more, pay more. Now we have to figure out ways to get more for less “” and the model for getting more for less changes the business environment. It says you're probably going to use the marketplace and competition more. You're probably going to change the “requirements process” in order to make weapons costs “” affordability, in effect “” a military requirement. You're going to have to change the acquisition process to be faster in response, both to the combat commanders' needs and to the fact that information technology changes so rapidly. You're going to have to use world-class logistics. We spend huge amounts on logistics now and we don't do a world-class job. We're going to have to change that. We'll probably have an industrial base structure that takes more advantage of commercial suppliers and international suppliers. Globalization will increasingly come into play. Technology is now global. Adversaries can get modern technology off the commercial shelf. We have enormous barriers to even having commercial people do business with us, in terms of our trade and auditing systems. We'll have some major restructuring to do on both the supply and demand side.
ExecutiveBiz: Are you optimistic that a government-industry collaboration can forge ahead?
Jacques Gansler: In the sixth grade I was voted the biggest optimist in the class. Certainly, the current situation is hard and it's gritty. But I'm still optimistic.