Defense Management: Efforts to Streamline Acquisition Management Structure

Published by the Government Accountability Office on 1990-12-05.

Below is a raw (and likely hideous) rendition of the original report. (PDF)



   Ih~<*t~llltwr l!M
                                 Efforts to Streamline
                                 Management Structure

                                                                             III Ill

                          RISTRICTED--      Not to be released outside the
                          General Accounting Office unless specifically
                          approved by the Office of CongrelPsional

                                        55013 I

     ___-_   .I ____.-_   -_ _...__.   -..   _ .._.   - .._   .._.   -..   ._. ._   _   “.   _-._._-   .._...-.”   .--...   -------
             United States
GAO          General Accounting Office
             Washington, D.C. 20548

             National Security and
             International Affairs Division


             December 6,199O

             The Honorable William V. Roth, Jr.
             United States Senate

             Dear Senator Roth:

             As you requested, we have reviewed the military services’ efforts to
             streamline their acquisition management structures as called for in the
             Secretary of Defense’s July 1989 Defense Management Report (DMR).
             The goal of such efforts, according to the DMR, is to confine accounta-
             bility for all cost, schedule, and performance features of major defense
             programs’ within a streamlined three-tier management structure. This
             report describes the services’ implementation of the DMR three-tier initia-
             tives. We found that it was too early to determine if the revised three-
             tier structure, as described to us, actually functions in a manner that
             achieves the desired goals.

             In 1986, the President’s Blue Ribbon Commission on Defense Manage-
Background   ment (the Packard Commission) reported that the Department of
             Defense’s (DOD) acquisition management had become so encumbered and
             unproductive that weapons historically cost more than planned and took
             too long to develop and deliver. The Commission stated that the DOD
             acquisition system lacked, among other things (1) clear accountability
             for acquisition execution and (2) unambiguous lines of authority for
             individuals with program management responsibilities.

             To correct these deficiencies, the Commission recommended that each
             service establish a streamlined three-tier acquisition management struc-
             ture for all major defense programs. The structure consists of a Service
             Acquisition Executive (SAE), responsible for all service acquisition mat-
             ters; Program Executive Officers (PEO), individually responsible to the
             SAE for a defined and limited group of major programs; and Program
             Managers (PM) responsible exclusively to their respective PEO for all mat-
             ters relating to their individual major program.

             ‘Major programs are defined by Department of Defense Directive 5000.1 as those having $200 million
             in research and development funding or $1 billion in total procurement cost. The directive also
             designates major programs based on the urgency of need, development risk, joint funding, significant
             congressional interest, or other considerations.

             Page 1                                                   GAO/NSIAD-91-16     Defense Management

                   External reports of the services’ implementation of these recommenda-
                   tions concluded that efforts to establish this structure were far from sat-
                   isfactory. These reports stated that (1) the new titles were assigned to
                   existing positions in the old chain of command, (2) the new three-tier
                   positions did not have the authority and control the Packard Commis-
                   sion had envisioned, and (3) intermediate management layers still
                   existed throughout the three-tier structure.

                   In February 1989, following the above studies, the President directed
                   the Secretary of Defense to review DOD management and develop a plan
                   to fully implement the Commission’s recommendations, improve the
                   acquisition process, and more effectively manage DOD resources. The
                   Secretary’s July 1989 DMR responded to this directive. The DMR specified
                   that, among other things, revisions be made to (1) the services’ three-tier
                   structure-also called the PEO structure and (2) the materiel and sys-
                   tems commands’ roles that relate to the structure. The services’ plans
                   for implementing the DMR directives were approved and made public in
                   .January 1990.

                   As prescribed in the July 1989 DMR, each military service has taken
Results in Brief   actions to revise (1) its three-tier structure and (2) the roles of its mate-
                   riel and systems commands. These revisions, if fully implemented as
                   intended, will more clearly separate the streamlined acquisition struc-
                   ture from the services’ existing structure by (1) appointing SAES and
                   PROSthat devote full time to acquisition matters, (2) giving three-tier
                   officials more control over acquisition resources, and (3) removing
                   unnecessary review layers from the acquisition process.

                   DOD  has not yet issued guidance-revised DOD Directive 5000.1 and
                   Instruction 5000.2-implementing the DMR changes. The services,
                   pending issuance of such guidance, have not updated their policies and
                   procedures to reflect the DMR changes. However, some services have
                   issued guidelines concerning the responsibilities of certain three-tier
                   acquisition officials. Until DOD provides guidance and the services’ poli-
                   cies and procedures are updated, issued, and implemented, we cannot
                   determine, at this time, whether or not DOD'S management accountability
                   goal will be fully achieved.

                   ‘Defense Acquisition Observations Two Years After the Packard Commission, The Institute for
                   Defense Analyses (Washington, D. C.: Nov. 1988); Report R-347 and Making Defense Reform Work,
                   The *JohnsHopkins Foreign Policy Institute and the Center for Strategic and International Studies
                   (Washington, D. C.: Nov. 1988).

                   Page 2                                                   GAO/NSIADdl-15      Defense Management
       _-..____- ~.-

                            The services have taken actions to revise their acquisition structures in
Acquisition Roles and       an effort to streamline the acquisition process and to clarify manage-
Responsibilities            ment accountability for major acquisition programs. In complying with
Clarified                   the DMR, they have clarified the acquisition roles and responsibilities of
                            their SAES, PEOS, PMS, and materiel and systems commands.

SAEs                        Our 1989 report3 and other external evaluations4 of DOD’S efforts to
                            streamline its acquisition management system revealed that some of the
                            services had created SAE positions by superimposing the title on existing
                            positions and some had not given the SAES the authority envisioned by
                            the Packard Commission. Our report pointed out that some SAES (1) did
                            not devote full time to acquisition matters, (2) were not authorized to
                            issue acquisition policy, (3) could not appoint or appraise PEOS, and
                            (4) did not control acquisition resources.

                            To ensure SAES would be full-time acquisition officials and would possess
                            the authority and control envisioned by the Commission, the DMR stated
                            that each SAE will

                        l be a civilian official at the assistant secretary level;
                        l devote full time to service acquisition functions;
                        l perform acquisition functions that are not duplicated in the service
                          chief’s organization;
                        . have primary responsibility for rating the performance of PEOs; and
                        * select PMS, with the advice of the PEO who has primary responsibility for
                          rating PMs.

                            The newly established SAE positions, as described by service officials,
                            conform with these requirements. For instance, officials stated the
                            Army and the Navy have appointed SAES at the assistant secretary level
                            that devote full time to service acquisition matters. The Air Force SAE,
                            prior to the DMR, was already an assistant secretary and was devoting
                            full time to acquisition.

                            “Acquisition Reform: DOD’s Efforts to Streamline Its Acquisition System and Reduce Personnel
                            (GAO/NSIAD-90-21, Nov. 1, 1989).
                            4DefenseAcquisition Observations and Making Defense Reform Work.

                            Page 3                                                  GAO/NSIAD-91-15     Defense Management

       Prior to the DMR, the Army and Navy SAES were service under secre-
       taries,” as the Packard Commission had recommended. But, contrary to
       the Commission’s recommendation, these under secretaries had
       numerous other responsibilities and could not devote full time to acqui-
       sition matters. The Commission, according to its Chairman, intended to
       give the services latitude in implementing this recommendation. The
       Chairman stated that the key issues regarding the SAE position were that
       the appointed individuals should devote full time to acquisition matters
       and have the requisite authority over these matters. Accordingly, we
       believe a full-time SAE at the assistant secretary level is consistent with
       the Commission’s intent, provided the SAE’S role, responsibility, and
       authority are clearly stipulated in DOD directives, regulations, or other
       formal guidance.

       We noted in our 1989 report that the Air Force and Navy SAES shared
       acquisition responsibilities with other service officials and did not have
       the authority and control intended by the Commission. According to
       officials in each of the three services, the new SAES do not share acquisi-
       tion responsibilities with any other service official, and their functions
       are not duplicated in any of the service chief’s organizations-including
       the materiel and systems commands. These SAES, through service guide-
       lines and regulations, also have the authority to issue acquisition policy,
       appraise PEOS, and manage their resources.

       Service officials further told us that SAES also have primary responsi-
       bility for rating the Direct Reporting Program Managers assigned to the
       three-tier structure. These managers, according to service officials,
       report directly to the SAE because they control broad or complex sys-
       tems. For example, the PMS for the Navy’s Aegis missile and the Air
       Force’s B-Z bomber are considered Direct Reporting Program Managers.
       At the time of our review, the Air Force had one Direct Reporting Pro-
       gram Manager, the Navy had four, and the Army had two.

PEOs   Prior to the DMR, PEO titles in the Navy and Air Force were superimposed
       on existing command chain6 positions. Both services assigned PEO titles

       “On May 13, 1989 (2 months before t,he DMR was issued), the Secretary of the Army appointed an
       assistant secretary to replace the Under Secretary as SAE. The Navy did not appoint an Assistant
       Secretary as SAE until March 1990.

       “This chain consists of the services’Secretary and Under Secretary, Chief of Staff, and commanders
       of the materiel and systems commands and their subordinate commands.

       Page 4                                                   GAO/NSIAD-91-15     Defense Management

    to commanders of systems acquisition commands. Under this arrange-
    ment, the PEOS did not devote full time to acquisition matters and
    reported through two chains of command-the three-tier PEO chain and
    the existing chain. As we reported in 1989, the Army created full-time
    PEO positions separate from the existing command chain. However, these
    PEOS also reported through two chains of command.

    To ensure that PEOS would report through clear, unambiguous chains of
    command and possess the characteristics envisioned by the Packard
    Commission, the DMR directed each service to establish PEOS that

l are selected by the service secretary with advice from the SAE;
. are only responsible for acquisition matters;
. are accountable to their respective SAES;
l individually, devote full time to managing a defined and limited group of
  major programs and related technical support resources;
. collectively, manage all major acquisition programs; and
l provide advice, along with the SAE, on the selection of PMS and evaluate

    The DMR also stated that funding and personnel authorizations for PEO
    offices, and those of PMS reporting to them, should be administered sepa-
    rately from the materiel and systems commands.

    Excluding the criterion of “managing all major acquisition programs,”
    which is discussed below, each service, as described by their officials,
    has revised its PEO positions’ consistent with the above criteria.
    According to these officials, the three-tier chain is now designed to give
    PEOS, PMS, and where applicable, Direct Reporting Program Managers,
    more authority and control over acquisition funds and personnel allo-
    cated to their respective programs.

    We were told that three-tier acquisition funds now flow from the DOD
    and services’ comptroller offices to the SAE, and ultimately to the PEOs/
    PMS. Under this new funds flow process, the materiel and systems com-
    mands’ comptroller offices serve as “banks” for the three-tier structure.
    These commands do not have the authority to manage or reprogram
    these funds. Such management decisions, according to service officials,
    are made by the three-tier officials. The acquisition funds administered

    7At the time of our review, there were 6 PEO positions in the Air Force, 6 in the Navy, and 12 in the

    Page 5                                                     GAO/NSIAD-91-16     Defense Management

                             by these officials include monies for (1) procurement, (2) operations and
                             maintenance, and (3) research, development, testing, and evaluation.

                             Officials also stated that PEOS now have more control over their perma-
                             nently assigned staff and the support staff provided by the materiel and
                             systems commands. According to the officials, PEOs now rate their per-
                             manent staff and provide written advice on the ratings of support staff
                             supplied by these commands. Prior to DMR implementation, the materiel
                             and systems commands controlled such resources.

PEOsAre Not Managing All     Contrary to DMRcriteria, PEosare not managing all major acquisition
Major Acquisition Programs   programs. According to officials from all three services, certain types of
                             major acquisition programs are, or will be, managed by their materiel
                             and systems commands rather than their PEOs. After DMR implementa-
                             tion, the Navy and Air Force requested permission from the Under Sec-
                             retary of Defense for Acquisition (USD(A)) to retain certain major
                             programs in their systems and logistics commands. This action was
                             taken in accordance with the 1989 DOD Directive 5134.1, which gives the
                             IJSD(A) authority to designate the type of oversight for major defense
                             acquisition programs. As a result of this action, the Navy’s systems com-
                             mands retained management authority for 21 of its 51 major acquisition
                             programs. The Air Force’s systems/logistics commands kept similar
                             authority for ‘7 of its 30 major and selected nonmajor” programs. The
                             Army, according to one official, transferred management authority for
                             its mature, major programs from the Army Materiel Command to its
                             three-tier acquisition system when the latter was established in 1987. In
                             late 1988, management authority for mature, major programs was trans-
                             ferred back to the Army Materiel Command, where it remains today.
                             This official also told us that, at the time of our review, the Army Mate-                         ~
                             riel Command was managing 9 of the Army’s 39 major programs.

                             According to Navy officials, programs retained by their systems com-
                             mands included those that were (1) in mature, stable production, (2) not
                             subject to any planned major upgrades, and (3) not presently involved in
                             any substantial matters of controversy or significant Defense Acquisi-
                             tion Board9 issues. Examples of systems meeting this criteria and
                             retained are the SSN 688 submarine, and the Phoenix and Sparrow mis-
                             siles Three of the 21 programs retained by the Navy system commands,

                             ‘The nonmajor programs were selected by the Secretary of the Air Force, SAE, and USD(A) as
                             requiring major I’M procedures.
                             “This board is the primary DOD forum for resolving issues, providing and obtaining guidance, and
                             making recommendations to the Secretary of Defense on all acquisition matters.

                             Page 6                                                   GAO/NSIAD-91-16 Defense Management

did not meet these criteria, but involved other special factors according
to Navy officials.

The Air Force took a similar approach to the Navy. In a March 13, 1990,
memorandum to the USD(A), the Air Force identified its criteria for
retaining major programs in its systems and logistics commands. This
memorandum stated that these commands should manage certain cate-
gories of programs. These categories included programs that (1) are in
the early stages of development-pre-milestone     I (pre-concept)
approval, (2) have minimal development risks, (3) have passed mile-
stone III (post-production) and are operational, and (4) are stable,
mature, and have met all Defense Acquisition Board requirements.
Examples of systems meeting this criteria, and retained under the Air
Force’s systems and logistics commands, are the KC-135 aerial refueling
tanker, and the Maverick missile.

In addition to giving the materiel and systems commands control over
certain major acquisition programs, officials from all three services
stated that programs presently under the three-tier structure will even-
tually be transferred to their materiel and systems commands. Navy and
Air Force officials stated that such a transfer will be made when these
programs meet their above stated criteria. Navy officials told us that
future transfers of this kind will be done on a case-by-case basis and
only with the ~JSD(A)'S approval. Officials within the Air Force stated
that the decision for this transfer will be made on a case-by-case basis,
but unlike the Navy, with approval from the SAE once the USD(A) has
designated the program as a service responsibility.

According to an Army official, transfers from the three-tier structure to
its materiel command and major subordinate commands have occurred
since late 1988. This shift occurs after a system has been provided to
the end user on a permanent basis following completion of operational
testing and low-rate production. We were told that criteria for this tran-
sition are also established on a case-by-case basis. However, this deci-
sion, as currently stipulated in Army regulations, is made with final
approval by the SAE. According to an Army official, the Army did not
interpret DOD Directive 5134.1 to be applicable to the transfer of mature,
major programs. Examples of systems transferred from the three-tier
structure are the UH-1 helicopter, M-60 battle tank, and the M-l 13
armored personnel carrier.

Although the DMH did not address transferring three-tier programs to the
materiel and systems commands, an official from the IJSD(A)'S office told

Page 7                                    GAO/NSIAD-91-16   Defense Management

          us that the revised DOD Instruction 5000.2 will establish uniform criteria
          and procedures for these actions.

PMs       Prior to DMR implementation, PMS were briefing existing command offi-
          cials. For example, in November 1989, we reported that some Army PMS
          were briefing officials of the Army Materiel Command and its major
          subordinate commands because these commands controlled the
          resources PMs needed for executing their programs.

          To minimize the number of briefings that PMs must provide and to
          ensure that they possess the characteristics envisioned by the Packard
          Commission, the DMR required the services to establish PMS that

      . report all matters of program cost, schedule, and performance only to
        their respective PEO and*”
      0 have broad responsibility for, and commensurate authority over,
        assigned major acquisition programs.

          According to service officials, each PM now reports directly to his or her
          respective PEO or SAE on all matters relating to program cost, schedule,
          and performance. In addition, we found that three-tier PMS were given
          more authority and control over their acquisition programs. As previ-
          ously stated in the PEO section of this report, PMS, along with their
          respective PEOS, have more control over their personnel and funding
          since their resource authorizations are now separate from the materiel
          and systems commands,

          According to service officials, PMS are no longer required to brief the
          materiel and systems commands, since these commands do not have con-
          trol of the three-tier acquisition system. However, service officials indi-
          cated that some briefings to these commands, by PMS, may be desired to
          ensure adequate coordination and communication. They believed, how-
          ever, that the three-tier structure would not be hindered by these

          In a related effort to reduce briefings, the USD(A), along with the SAES,
          issued policy to decrease the number of briefings required at the Office
          of the Secretary of Defense and service levels. They directed that PMs
          give no more than two briefings within the Secretary’s office prior to

          “‘In addition, the services established Direct Reporting Program Managers that report directly to
          their respective SAIL

          Page 8                                                    GAO/NSIAD-91-16      Defense Management

                            briefing the Defense Acquisition Board, and no more than two formal
                            briefings within the service once PMS are ready to go before this board.

Materiel and Systems        We reported in 1989 that the Air Force Systems Command and Army
Commands                    Materiel Command continued to have major acquisition management,
                            oversight, and policy-making responsibilities within their respective ser-
                            vices. In an effort to clarify management accountability and streamline
                            the major acquisition management process, the Defense Secretary
                            directed that the roles and responsibilities of the materiel and systems
                            commands for major weapons acquisitions be limited to supporting the
                            three-tier structure. The DMR limits the materiel and systems commands’
                            acquisition roles to

                        . providing logistical support to the three-tier chain,
                        l managing programs other than those in the three-tier chain,” and
                        l providing support service&* to PEW and PMS while duplicating none of
                          their management functions.

                            According to service officials, as a result of the DMR, the materiel and
                            systems commands are no longer involved in three-tier acquisition man-
                            agement, and they are not duplicating three-tier management functions,
                            thus reducing a layer of management and related oversight levels. These
                            commands are providing logistical and service support to the three-tier
                            acquisition structure, especially in the form of support staff, and are
                            managing all acquisition programs not assigned to the three-tier chain.
                            For these programs, the materiel and systems commands are account-
                            able to the SAE.

                            Progress has been made in implementing the DMR-directed three-tier
Implementation Status       acquisition structure. However, the future success of this structure is
                            far from certain. Historically, efforts to overcome a cultural change of
                            this kind have proven difficult, especially if such actions are not institu-
                            tionalized through formal, written directives and formal guidance. Since
                            the DMR was issued, the Navy and the Air Force have issued some
                            guidance/charters concerning the responsibilities of their SAES and PEOS.
                            The Navy has also (I) drafted charters that define the roles and respon-
                            sibilities of its systems commands and (2) issued memorandums of

                            1‘These include less than mdor programs and mature, major programs that were retained by or
                            transferred to the materiel and systems commands.
                            ‘*These services include financial, technical, personnel, and administrative support

                            Page 9                                                     GAO/NSL4D-91-16     Defense Management

              understanding, called operating agreements, that describe the interac-
              tion between the three-tier structure and these commands.

              The Air Force has not updated its regulations to reflect the DMRchanges.
              In February 1990, the Air Force issued its regulation on acquisition
              management that implements DOD'S1987 guidance (DODDirective 5000.1
              and DODInstruction 5000.2) and other related material prior to the DMR.
              This regulation defines the responsibilities, authority, and structure of
              the Air Force’s acquisition system. Memorandums of understanding
              between the Air Force PEOSand system commands were not prepared
              because, according to a service official, the SAEdid not believe they were

              According to an Army official, the Army had not updated its acquisition
              guidance or revised its charters since publication of the DMR.This offi-
              cial stated the Army was awaiting publication of DOD'Srevised DOD
              Directive 5000.1 and DODInstruction 5000.2 before updating their
              detailed acquisition policies and procedures. Although the Navy and the
              Air Force have issued some implementing guidance, as noted above, offi-
              cials from these two services stated they too were awaiting issuance of
              revised DODacquisition guidance before updating their service-level gui-
              dance. DODDirective 5000.1 and DODInstruction 5000.2, according to DOD
              officials, will set forth the managerial policies and procedures for the
              entire acquisition system.

              DODDirective 5000.1 and Instruction 5000.2 were last published in
              September 1987 and, according to officials in the USD(A)'SOffice, the
              updated versions are in the final stages of revision. At the time of our
              review, DODofficials in the USD(A)'SOffice told us that the revised gui-
              dance would be issued by the end of calendar year 1990. Since the ser-
              vices have made considerable modifications in their materiel and
              systems commands and in their PEOstructure, especially within the
              Navy and Air Force, revising DODguidance within the targeted time
              frame is important.

              We reviewed the 1986 Packard Commission’s report, the Secretary of
Scope and     Defense’s DMR,service-related implementation plans, DOD'SJanuary 1990
Methodology   DMR implementation status report, and applicable DODand service-issued
              DMR guidance. In addition, we studied some of our previously issued
              reports on DOD'S acquisition system, as well as studies performed by
              other organizations external to DOD.To gain a better understanding of

              Page 10                                   GAO/NSIAD-91-15   Defense Management

how the services planned to implement the    DMR,   we attended a series of
DOD briefings.

To determine the implementation status of DMRacquisition-related rec-
ommendations, we obtained information on each services’ revised three-
tier acquisition structure. We also interviewed senior officials in the
Office of the Secretary of Defense and in each of the services. These
officials were from the USD(A)'SOffice and the services’ headquarters,
materiel and systems commands, and SAEand PEOoffices, all located in
the Washington, D.C., area. We did not interview PMS,as the services’
initial DMRimplementation actions were primarily centered on the SAE
and PEOpositions and the materiel and systems commands.

Our review was performed between January and August 1990 in accor-
dance with generally accepted government auditing standards.

We did not obtain formal comments from DODon this report. However,
DODofficials did review a draft of this report and, where appropriate,
their comments were incorporated in our final report.

Unless you publicly announce its contents earlier, we plan no further
distribution of this report until 30 days from the date of this letter. At
that time, we will send copies of this report to the Secretary of Defense
and to other interested parties upon request.

This report was prepared under the direction of Paul Math, Director,
Research, Development, Acquisition, and Procurement Issues, who may
be reached on (202) 275-8400, if you or your staff have any questions.
Other major contributors are listed in appendix I.

Sincerely yours,

Frank C. Conahan
Assistant Comptroller General

Page 11                                    GAO/NSIAD-91-15   Defense Management
Appendix I

Major Contributors to This Report

                           Michael E. Motley, Associate Director
National Security and      James F. Wiggins, Assistant Director
International Affairs      William M. McPhail, Evaluator-in-Charge
Division,    Washington,   Marion A. Gatling, Evaluator
D. C.

                           Page 12                                   GAO/NSIAD-91-15   Defense Management
Page 13   GAO/NSIAD-91-16   Defense Management
Page 14   GAO/NSIAD-91-16   Defense Management
Page 15   GAO/NSIAD-91-15   Defense Management
Related GAO Reports

              Acquisition Reform: Authority Delegated the Under Secretary of
              Defense for Acquisition (GAO~NSIAD-90.183,
                                                      June 6, 1990).

              Defense Acquisition: Perspectives on Key Elements for Effective Man-
              agement (GAOINSIAD-90-90,May 14, 1990).

              Acquisition Reform: DOD'SEfforts to Streamline Its Acquisition System
              and Reduce Personnel (GAO/NSIAD-~~-~~,N~~.1, 1989).

(B9672H)      Page 16                                 GAO/NSIAD-91-15   Defense Management
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