Los Angeles - October 27, 1995

The Honorable Darleen Druyun
Assistant Secretary of the Air Force for Acquisition (Acting)
Los Angeles AFA Symposium
October 27, 1995

Acquisition Reformed

Ladies, gentlemen, distinguished guests and members of the Schriever Chapter of the Air Force Association, it is a real pleasure for me to have the opportunity to talk about where we are going in the area of acquisition, particularly in acquisition reform.

My comments today are going to concentrate on where we have been and where we are going on our journey down the acquisition streamlining highway. I do mean highway because I think we are beginning to really pick up some speed. I d like to share with you some of our recent success stories and later on listen to some of your ideas and questions. I do have to say that the Air Force Association has just been extremely supportive of our efforts to get out and really make acquisition reform a reality. The Air Force Association is generous enough to help us sponsor four seminars around the country and allow our partners in industry the opportunity to deal with this first hand and give us ideas on how we can continue to make really great progress in terms of acquisition reform.

Sometimes I am asked, "Why do we need to continue on our path to change the way we do business?" The hard core reality is that the Air Force s investment budget is at its lowest level since 1985. Our 1995 investment budget is one-third of the 1985 level. As a share of the total Air Force budget, our investment spending has gone from about one-half the Air Force s total budget in 1985 to about one-third of the budget today. To maintain a modern and effective Air Force, and we heard General Fogleman speak about that very clearly, we must drive down the costs of acquiring systems. Acquisition reform is absolutely critical to afford future modernization. This reform is done by adopting commercial practices, clearly developing a government-contractor partnership, getting away from an adversarial relationship that we ve had over the years, looking at cost as an independent variable, and reducing cycle time. It just takes too long today to get those requirements out to the user.

The entire DoD senior leadership has really declared war on the acquisition process. The acquisition reform initiatives are clearly not a fad. It is supported by every member of the DoD team.

It is interesting to note that General Fogleman last month as a guest speaker at Air Force Materiel Command s CEO conference had some very cogent comments and I d like to just quote from one of them. He said, "The senior leadership of the Air Force is going to support people who have the vision and the courage to step up to initiatives like the Lightning Bolts. We will nurture and promote the innovators, the people who can think outside the box, and, I have to tell you, "Thinking outside the box is critical in acquisition reform." We are going to rewad people who can get things done, who are not afraid to give us their opinions. We need to train the old school of thought right out of our workforce."

We are engaged in a significant culture change with respect to how we do acquisition. I absolutely agree with General Fogleman. We have got to get rid of the old school of thought, which requires all of us to engage in what I would term guerrilla warfare battles, to fight those individuals within the system who refuse to change. All of us know that there are areas within the acquisition process and within our process that must be streamlined. Just as industry has made those tough decisions to downsize, we too are making those tough decisions within Air Force acquisition. As I ve stated many times, we need to look at our organizations, identify what is value added and eliminate non-value added elements, processes, and practices. This will allow us to capture hidden costs so we can take and reinvest those savings in the future modernization efforts of the United States Air Force.

Each of us in this audience knows where many of those non-value added tasks are. I think all of us know how we need to attack them and begin to get rid of them. I challenge each of you not to sit back and wait for us to step out. This is a partnership. I expect industry to work jointly with us and with our SPO [System Program Office] directors, to look at your existing contracts and to come back to us and say, "I don t need all these milspecs and milstandards. What are you doing with all of these mountainous piles of paper that I give to you on a monthly basis? They cost you money and they cost me money."

Yes, I recognize that in the way we write our contracts they are very much cost based and that your profit depends on that, but remember, there are things like value engineering change proposals, in which you can come back to us and say, "I can save you money; let s have some sort of sharing arrangement." We need to find ways to motivate each other to make those smart decisions.

What are the ramifications of our reforms?" I think Air Force reforms in acquisition are beginning to pay big dividends. I want to talk about a couple of programs to let you see the path upon which we are moving. We have some pilot programs, like the JDAM [Joint Direct Attack Munition], and JPATS [Joint Primary Aircraft Training System], the next trainer for AETC [Air Education and Training Command]. We also lead programs like Wind Corrected Munitions, Space-based Infrared Satellite System and the Evolved Expandable Launch Vehicle. These programs have all used acquisition reform methods to change the way we acquire these new military capabilities in addition to relying on commercial products to satisfy military requirements. What is important to each and every person in this room today is that w began to institutionalize these changes.

In my opinion, we have a very rare opportunity over the next two to three years to finish that cultural change and make acquisition reform something that is lasting, not something that is just passing in the night.

How do we institutionalize our successes? In the last four months, I have had four off-sites with my program directors, with my PEOs, and with my designated acquisition commanders to share with them the success stories and also those that have not worked well. We are spreading the word and opening up our minds to think outside that box. As we have traveled around with the Air Force Association, I have had contractors come up and say that we are talking the talk but not walking the walk. While I agree with that statement, I once again challenge you through partnership with us to go back and take a look at your individual contracts and figure out how we can do it smarter, better, faster, cheaper. You are going to hear me say the words, better, faster, cheaper a number of times today because that s where we want to go in acquisition reform.

I spent a lot of years working with the space community including two years with NASA. Within the Air Force, it used to be a common statement that the space community was different. The space community and acquisition reform is different. The space community is paving the path of how we can take our old fashioned processes and throw them out the window and find much better and more effective ways of doing things. SBIRS, EELV, GPS [Global Positioning System] and Milstar are some very great examples that we have today of what we ve done to begin that path of changing how we do business.

Historically the acquisition community is perceived as being "risk averse" and unwilling to change. I have an expression in my own organization. I call it the "W" word: wimps, whiners or warriors. I have challenged each and every one of my acquisition personnel to become acquisition warriors. Every time I hear someone complaining about something or saying it is too hard to do, I look at them and say, "Remember the "W" word. We are not wimps. We are acquisition warriors. We are leaders." Everyone of us needs to step up to really being a leader in everything that we do on a daily basis.

If I could turn for a few minutes and talk about some real success stories that show we can do things better, faster and cheaper and get those requirements delivered earlier to the user.

The first one is called JDAM. By taking a kit and putting it on a dumb bomb, we make it into a "smart" bomb. Back in August of 1993, we put out an RFP to get this program rolling. It is interesting when I compare the RFP that we put out in August 1993 to the one that we put out in October 1995. Back in August 1993 we tried as much as possible to engage in real acquisition reform. It was really our first attempt. You can see how far we have gone when I give you some statistics.

The number of milspecs and milstandards on my RFP in August 1993 was 87. We didn t put out another RFP; why should I put out another pile of paper? When I put out our call for improvements, we put out a simple little letter, a two-page letter, and termed it a call for improvements. We had zero milspecs and milstandards in that document. Back in August of 1993, I had a 138 page Statement of Work. We got rid of that Statement of Work because it gets into far too much detailtelling our contractors how to do their work. I personally believe that contractors out there don t need to get that type of detail. Instead, we went to a two- page Statement of Objectives. We went from 234 CDRLs [Contract Data Requirement List] down to 29; that is tremendous reduction in paperwork that cost us money. Back in August 1993, when we put out that RFP, our average unit procurement price goal for 40,000 units was $40,000. That $40,000 was a number we had derived doing things our traditional way. When we made that contract award approximately a month ago, we reduced the $40,000 to $18,000. In fact, the average unit procurement price for a procurement of 76,000 units will drop to less than $13,000 per kit.

What is important to me is that originally we thought the development time would take us 46 months. We now have it down to 30 months. We had two superb contractor teams, Lockheed Martin and McDonnell Douglas, competing head to head. I took our source selection rules and threw them out the window. I didn t use a 70-15 split. We actually did what I would term a "rolling down" select. We allowed our program director to come up with a set of criteria. We shared it with the contractors and evaluated the contractors every six months over an 18-month period to see how well they were doing with the promises that they made to us and the contracts that we awarded to them. More importantly, as we concluded the first 18-month period of engineering manufacturing development, it became clear that I could give back about $1.5 billion worth of costs to our user, Air Combat Command, by reducing production time from 15 years to 11 years. Why? Because the kit price was not going to be about $40,000; the kit price was going to drop to less than $13,000 over a production run of approximately 80,000 units. The message I try to give each time as I talk to our acquisition personnel is that we can make a difference. We can give back dividends to each of our users. That is my goal.

As we work through our budgets, our goal is to give money back to our users so they can reinvest that to help us modernize the U. S. Air Force. Once again, faster, better, cheaper. JDAM is a great example of how we can do that.

Another example I d like to use is Peace Shield. Peace Shield is a program we have with the Royal Saudi Air Force. Yesterday, I had the opportunity of presenting a $50 million check to the Hughes Corporation for some outstanding work they did with Peace Shield. The first time we did Peace Shield we didn t do very well. We terminated that contract, but we turned around, did another quick competition and this time picked Hughes Corporation. We told the contractor it is important to the Royal Saudi Air Force that they get a command and control system that meets their needs. We laid in a 54 month schedule, but we put a $50 million bonus in there if the contractor could deliver that system in 48 months or less.

I became deeply involved in that program approximately 3 « years ago, when I came back to the Air Force, and the contractor at the time was about 12-14 months behind schedule in software. Once we focused on the issues, we came up with an integrated management schedule and worked together as a team, as a partnership, and the contractor was able to turn around his software deficiencies. In fact, he didn t deliver the system six months early, he deliveed the system seven months early. He under-ran the target cost of the contract. To me that is another excellent story of what one can do in acquisition reform. What is interesting to note is the program director, Gary Smith, was a few years ahead of the rest of the acquisition community. The idea of putting a performance incentive and putting a significant amount of money to it, was a very attractive feature that we are going to try to roll into some of our future acquisitions as we try to do things better, faster and cheaper.

More importantly, if you looked at his SPO size back in 1992, the Peace Shield program office had 325 people in it. I asked Gary to put himself on what I termed the "Slim Fast" diet. Once again, that is a lot of folks, and a lot of paperwork that is being put together, and it costs money to have an organization that large. Today, that program office is down to 105 people and is continuing to shrink, even though we have a significant follow-on activity in the Peace Shield area.

What am I talking about in terms of dollars? That is not a lot of money, but it is $25 million we did not have to take out of TOA and invest to pay for people costs and paper costs. I challenge each one of my program offices to do a stretch goal to try to reduce the size of our program offices by 50 percent over the next four years. I believe it is reasonable. Remember, the money is coming from the Air Force, and it is coming from our users our CINCs, and our major command commanders. It is our duty and responsibility to give them best value, to do it better, faster and cheaper.

Another example is Milstar. I ve had folks say to me you can t take an existing program and go back and change that contract. I have news for you. You can; you should; and you must. Milstar is a great example of where acquisition reform is paying great dividends. We have cut the program and cut and cut on an annual basis. I know General Ashy finds it to have been a very painful process. The last cut in the Milstar program was for $236 million.

Program directors say, "I really don t know how we are going to take and implement that program with the cuts that we are seeing." The challenge for the acquisition community is to go ahead and see what we can do to really try to reduce costs. So I challenged the SPO director, working as a partner with the Lockheed Martin team and their major subcontractors, to go in there and take a look at what are the cost drivers in that existing contract. It is interesting what General Kwiatkowski [Brig. Gen. Leonard F. Kwiatkowski] did in that area. I consider him to be a leader in acquisition reform. We took an existing contract and we deleted a number of CDRLs. We went from 126 down to 51. We had 110 milspecs and milstandards in that contract and we got rid of many of them. The new number is now 43. We used to be involved in 301 government acceptance events in that procurement. Think about it 301 acceptance events. That is a lot of people and a lot of paperwork. We now have one event, DPRO [Defense Plant Representative Office] inspections. The DPRO used to go in and do approximately 38,000 inspections as we built up the satellite to get it ready to be launched. Today we ve changed that and brought it down to 100 inspection points. Finally, and most importantly, we reduced the Milstar budget by approximately $236 million. We are able to continue to deliver a satellite that meets all of General Ashy s requirements. But we did it better. We did it faster. We did it cheaper.

I have a couple of other stories I d like to tell you about. Another one is in a program called PACER CRAG. This is an avionics modernization effort with the KC-135 program. This is a program at an air logistics center. My own folks told me it is a lot harder to do acquisition reform in an air logistics center, so I picked PACER CRAG as a case of where, working together, we can do smart things. I took a look at the original RFP. I was very unhappy with it. It had far too many CDRLs, and it had far too many milspecs. I couldn t understand why we had a lengthy Statement of Work. I was not thrilled with the procurement. I picked up the phone and talked with General Eickmann [Maj. Gen. Kenneth E. Eickmann] at the Oklahoma City Air Logistics Center. He agreed we could do better. "We re going to put together a red team to help the SPO scrub that document and get an amendment out to industry and do it very quickly."

General Fogleman expressed some concern to me that we were going to delay this procurement. After seeing the foot-thick document sitting on my table he said, "I understand, but do smart things with it, and remember, we d like to get that contract awarded on time. We don t want to delay it; it is an important user requirement." I am pleased to report that when we did go and put out an amendment, we got rid of the Statement of Work 60 pages in length. We went to a Statement of Objectives that was 10 pages in length. We went from 331 CDRLs, which was driving that huge pile of paper I showed General Fogleman, down to 39.

That certainly saves money on a contractor s part. We went from 6 milspecs and milstandards to zero. I am proud to report the team under the leadership of General Eickmann awarded that contract one week early. And I am able to give back to the user $90 million over the FYDP. The simple message is: We can do it better. We can do it faster. We can do it cheaper.

The last example I d like to use is the GPS story. This is an example of how you can sit down and take a hard look at what is driving the cost of a large SPO and how can I give some money back to General Ashy so he can take and reinvest that in the future of the Air Force. It was clear when we sat down and looked at all the individual contracts, there was a lot that could be done. For example, we had six contractors working on the ground station doing software updates and helping us to keep the ground systems operational.

We laid out an overall acquisition strategy where we would go from six contractors to one. It was a hard fought battle. Some of the functionals in OSD did not want us to write a contract that would allow me to buy a whole constellation and then some. They wanted me to recompete this thing every five years. They got sick of hearing from me. I probably went down there three days a week and logically and rationally took them through why it was the right thing to do. In laying out our acquisition strategy, we put out an RFP, first working in the ground stations, consolidating six contracts into one. We know how precious O&M money is to our CINCs and to our major commands. We are in the process of source selection for GPS. Once again,I ersonally looked at that RFP, I talked to everyone of the competitors individually. It is a model of how we can do acquisition reform. I expect, General Ashy, to do that better, faster, cheaper and to give money back to you so you can reinvest it in the future of the Air Force.

What does all this mean? Clearly, it is up to you and me. We must form a partnership and we must work as a team. It means that you can change the way that you do business. You just have to want to do it. You can be a whiner, a wimp or a warrior. On my part, I choose to be a warrior.

As we have more and more successes, the oversight process will decrease on those companies and programs that prove that they are top performers. JDAM is an excellent example of that. In the JDAM program, we entered into an agreement with the contractor that we would draw out most of our DPRO oversight as long as the contractor remained on track, as long as he remained within that commitment curve with respect to how we laid out a future pricing of that kit. The government is going to stay out of the contractor s hair. We have brought the program office down from 75 people to 40. The number is going to continue to drop. We also want very much to make sure that we have the right carrot and stick in the contract to keep a contractor motivated, so the government doesn t have to. We put some carrots and sticks in the contract. It says we are going to stay with you on a sole source basis for the life of the production of these items as long as you stay on that commitment curve and as long as you deliver me a quality product. That is the kind of commitment that we are making to the contractor, McDonnell Douglas. I feel very confident that we are going to be able to live up to that commitment.

In trying to conclude my remarks, I want to stress to you that experience, teamwork and communication are critical if we are going to continue down this path of acquisition reform, and if we are going to change the paradigm and achieve lasting reforms. I believe that vision, drive, energy, singleness of purpose, wise use of resources, and a commitment to a destiny are characteristics of an organization that excels. Those are going to be the characteristics of Air Force acquisition.

I know this is true because these are the characteristics of some of the programs that I ve spoken about JDAM, Milstar, GPS, Peace Shield, PACER CRAG. I could probably stand up here for another 10 minutes and name many other programs. You and I are the leaders in the acquisition community. You must be innovative and use the lessons we have already learned to move forward and continue down that path of acquisition reform. It is time for each of us to join hands with the warfighter and become a warrior in the acquisition community with the battle cry, better, faster, cheaper. Thank you.

GENERAL SHAUD: Darleen, we have a number of questions. First, apparently DSMC [Defense Systems Management College] out of Belvoir [Fort Belvoir, Va.] is teaching the old ways of doing business. Why isn t the schoolhouse at the leading edge of reform?

MS. DRUYUN: That is an excellent question. We have had some lengthy discussions with the folks over at the Defense Systems Management College. Unfortunately, it seems like it takes our training community a little too long to get up to what I would term "reality." I can tell you that General Claude Bolton is actively changing the curriculum, but in the interim he is bringing in the leaders of acquisition reform such as Colleen Preston [DUSD for Acquisition Reform], for example, Paul Kaminski [USD for Acquisition & Technology], Noel Longuemare [ PDUSD for Acquisition & Technology], myself, Army and Navy folks, and more importantly, bringing in SPO [System Program Office] directors, like Terry Little for example, and Craig Weston, who heads up the Space-Based Infrared System [SBIRS]. He has them share real time stories and tell what acquisition reform is all about.

In addition, so far I ve had four off-sites with each of the services. I have another one coming up and Blaise Durante probably pulls out what little hair is left in his head putting together first class training programs. AFMC [Air Force Materiel Command] is actively involved in road show training. We are taking that training, and we are giving it to our partners in industry because this is not just a question of retraining the blue suiters and the civilians in how you go about doing acquisition reform. It is retraining the whole acquisition workforce. And our contractor community is a very important part of that. The bottom line is, yes, DSMC is slow. They are getting up to speed very quickly, but in the interim we are getting the right people in there to talk about the techniques that one needs to use to engage in doing things better, faster and cheaper.

GENERAL SHAUD: Darleen, let me combine a number of questions dealing with milspecs. "Milspecs grew in part in response to specific problems around equipment failures. If problems occur in the future, and all programs are very likely to have problems, won t we see pressure to reimpose milspecs?" Let me also go to the next one. "I understand the logic of getting away from military standards and specs, but the major complaint from many contractors is that their systems are already conforming with milspecs and with little or no commercial business, it is cost prohibitive to change."

MS. DRUYUN: Let me address the whole issue of milspecs. The Department of Defense is engaged in a very active program to scrub through every milspec and milstandard that is currently in its catalogue. The fact remains that I expect probably 70 percent of those milspecs and milstandards are going to be thrown out the window. A good number of them have already been tossed out. There will be some that will be retained. There will be some that we will continue to update.

There is a significant issue here. If you start using milspecs and milstandards that we are going to be thrown out the window and updated, who is going to take on the responsibility of trying to keep those updated. That is an issue we are working on with some of the industry associations. Yes, there are going to be times when we are going to fail in the program. But I am here to tell you that we have enough failures in the past in programs we have worked on that were replete with tons and tons of milspecs and milstandards and CDRLs [Contract Data Requirement List] up the gazoo, but it still didn t help us get there in terms of successfully delivering a product to the user.

It is incumbent on acquisition leaders, and I certainly consider myself to be an acquisition leader, to stand up and ay, "Yes we had a failure, but no, this is not the reason to reimpose all of this system that we are trying to climb out from under." I stressed to the acquisition community we should be using best practices. Contractors have many best practices. The government, believe it or not, also has some best practices, and we should be molding the two of these together. From some of the competitions we have done, we are seeing a blend of best practices, i.e., continuing to use the milspecs and milstandards because industry that is competing on a given procurement believes it is the right thing to do. But I ve also seen industry come in and say, "I am going to use my own process that I use today." For example, use them in building commercial satellites or building commercial launch vehicles. This is going to be an area where we are going to have to work our way through, but be smart as to how we do it. The current leadership inDoD, beginning with Dr. Perry [William J. Perry, Secretary of Defense], Dr. Kaminski, Noel Longuemare, and the Secretary of the Air Force, believe we need to reach out there, get out of that box, be bold, recognize once in a while we are going to fail, but pick out the crumbs, and get on with delivering the requirement to a user. I have found myself spending a fair amount of my time working with what I term problem programs. But I have also found some interesting facts.

I find if a contractor puts together a true integrated management schedule you can identify what the problems are on the horizons, you can develop work-arounds and you can make that schedule a living, breathing document and work through the issues. I have also found in areas where we have problems in programs that I periodically get together with the chief executive officer of that company and I find suddenly there is a lot of talent being focused on what is potentially a broken program. And guess what? By the time we work our way through it, it is not broken.

Peace Shield is very good example. And, I can give you numerous examples of programs I have worked on personally in the last three years. It is a simple message I want to get to you: You shouldn t use milspecs and milstandards as a crutch. You shouldn t use that as an excuse for failure and, therefore, shouldn t break out of this box and try to do something new and different. Recognize that you have the support of your leaders from the top beginning with OSD, through the Air Force, down through General Viccellio s [Gen. Henry Viccellio, Jr., AFMC] program executive officers, your DACs [Defense Acquisition Center], and as we find we have problems, I am going to roll up my sleeves.

If it is a problem, for example out at the Space and Missile Systems Center, General Lyles [Lt.Gen. Lester L. Lyles] is going to roll up his sleeves and the institutional Air Force, working in integrated product teams with OSD, is going to find ways to take and solve those problems. Sometimes it is going to result in a program termination and going off in a different path.

GENERAL SHAUD: Darleen, one last question. It is the "How much is enough?" question. How is the senior leadership assessing the potential risk associated with downsizing, reengineering the System Program Offices?

MS. DRUYUN: That is an interesting question. If you were to historically look at the size of our SPOs, you would find in some of our fighter SPOs that we are not buying F-15s or F-16s right now, except for FMS cases. This kind of shocked General Yates [Gen. Ronald W. Yates] when we started sizing the SPOs and looking at where we were today versus where we were 20 years ago. One SPO that General Yates used to run, was bigger than when he left it. When he left it, they were finishing up engineering manufacturing development.

It is easy for us to grow our bureaucracies. I have found that so true. If you don t have something to do, you find something to do. We are going through the same tough decisions that industry has already been through and as far as I am concerned, we have got to go through that. It costs the Air Force money. It is the users' money that is paying for the size of my SPOs and paying for al that paperwork. I want to get rid of that paperwork. I want to get down to what is important and really focus in on what is important and managing a program and allow contractors to fully utilize their talents. They have great talents to work with us in a partnership so I don t have to have a SPO of 500 or 600 people looking over the contractors shoulders making sure that they do everything correct.

Past performance is the other critical part of what we are doing. I am a strong believer that I want to do future business with those contractors who can deliver on their promises. Which is why, for example, I ve toughened up the contractor performance assessment report with a simple question that we put at the bottom of each one of those forms as we look at the progress that contractors have made in the last year. And the simple question is: "Knowing what I know today and how well that contractor is performing in that contract today, would I award them the same contract again?" It is interesting to see the responses coming through and the attention that is getting within industry. But I believe that by coupling past performance, by turning toward a partnership with industry, I don t need to have SPOs that are hundreds and hundreds of people watching a contractor do something. I need to become lean and mean like the rest of the United States Air Force.

GENERAL SHAUD: Thanks Darleen. Thanks for being an acquisition warrior.

Return to Los Angeles '95 Foundation Forum