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Department of Defense Press Briefing on the second annual Performance of the Defense Acquisition System Report, a Better Buying Power update and the Superior Supplier Incentive Program

Presenters: Under Secretary of Defense for Acquisition, Technology and Logistics Frank Kendall III; Assistant Secretary of the Navy for Research, Development and Acquisition Sean Stackley
June 13, 2014

UNDER SECRETARY FRANK KENDALL: Thank you.

 I'll take a few minutes and then Sean will talk for a few minutes, and then we'll take questions.

I'm here to update you on what we're doing to improve acquisition outcomes. I hesitate -- in fact, I do not use the term "acquisition reform," as I think that's misleading in that there's dramatic things that we can do to significantly improve acquisition. It's much more about a process of continuous improvement.

Four years ago, Dr. Carter and I started the Better Buying Power initiatives, the first round of those initiatives. And we put the label "Better Buying Power" on what is really a process of continuous improvement.

And about two years ago, I introduced the second set of Better Buying Power initiatives. We called it Better Buying Power 2.0. And it's timely to update that and think about where we're going to go from here. A lot happens in an evolutionary fashion all the time anyway. We have a couple of significant events, if you will, in terms of progress we're making that we're going to talk about today.

And I recently wrote an article that I think you have a copy of for the acquisition workforce, or we can give you a copy of it, anyway, on sort of a status report on Better Buying Power 2.0, how we're doing on all this. So I'll let you take a look at that and ask me questions about it if you like. I won't get through all of that.

But I want to talk a little bit about the categories of things that we're working on and what we're doing there. And we'll highlight a couple of specific things.

I'm working with the Congress on this right now. I should mention that. There's some acquisition improvement or reform efforts underway in the Congress. I had a letter from Senator Levin and Senator McCain recently asking for an input on that. Sean had a similar letter. And we've sent them some -- I'm in the process actually. I'm going to sign something out today.

But a couple of things that could be done to help us there. The first and foremost is to get rid of sequestration. The thing that is hampering our efforts to improve efficiency right now is the uncertainty about future budgets. And that's driven by the threat of sequestration. So that would be enormously helpful.

The other thing which is highly related to Better Buying Power is to help us improve the professionalism of our workforce by giving us tools that we can use to grow the talent and nurture talent and make that workforce more effective.

So, I'm going to walk through the major categories of Better Buying Power very quickly. The first one is to achieve affordable programs. I think we've made a lot of progress here. Almost all of our acquisition category one programs now have affordability targets. They are being added as programs come through the acquisition system at various steps in their life cycle. And we're in the process of enforcing those.

At this point, I think about 30 or so programs, we have acquisition affordability targets or caps on. All of them are within those caps, with two or three exceptions and those are very, very close and we're working to get those under as well. So that part of Better Buying Power I think is going pretty well.

Controlling costs throughout the acquisition life cycle is the second major category. And one of the things that's under that category is the idea of measuring our performance and learning from our experience. Now, you have this year's edition, the second edition of the performance of the defense acquisition system report, which is a volume that we'll be publishing every year. It will be incremental. We'll be adding additional data to it. We'll be expanding some of the data we already have.

We'll be tracking how we do and trying to learn from that. And there's some important things in that volume that confirm what I think many of us felt about incentives and the utility of incentives. But incentive-type contracts work. That's encouraging news.

The news that's not quite as encouraging is we don't always employ those incentives as effectively as we could. And in some cases, they're not effective at all. In other cases, they even appear to be counterproductive. So we've got to look at that carefully and try to do better there. So there's some good lessons learned there, and in some other areas.

We're also reporting more than we have in the past in this year's edition on the profitability of industry and how industry is making profits and the relationship between that and the work that they're doing, which is I think important for industry to understand. It's certainly important for us to understand, so we can align profitability with the performance that we want.

I've got a number of things going on to improve incentives across the board for using contract types more flexibly and trying to use the appropriate contract types and I think we're having some success with that.

Under the previous addition of Better Buying Power, there was a sense that we had to use certain types of contract all the time. And I think we've done a lot to educate the workforce and train the workforce to be thoughtful and creative and think critically about the right type of contract to use and the right incentives to put in place.

One of the other things we're doing -- and this is what Sean'll talk about in a moment -- to incentivize industry is start recognizing our better performers. We tried to do this under Better Buying Power 1.0. We were not able to work our way through all the bureaucracy and the difficulties of how do you do this.

So rather than introducing the DOD-wide system at that time, we decided to give the Navy the opportunity to do a pilot program in that area. And this idea originated actually from the Navy. So over the last year or so, we've been working on that and Sean will be talking about the introduction to the results of the first round of our superior supplier program for the Navy pilot.

And I've already directed the Army and the Navy (sic: Air Force) that they will expand and they will adopt the same methodology basically going forward. So a year from now, all the services will have to publish results on the superior suppliers and identify those suppliers.

We continue to try to promote effective competition, which is the next major area. We are not increasing our level of competition, direct competition, and I'm disappointed in that. I think that's partly the result of the budget situation we're in.

Declining budgets reduce some of our opportunities. But there are enough opportunities still there that I think we can do better. We're going to be focusing very much on that going forward.

Improving tradecraft and the acquisition of services, the next major category. We're making progress there but we still have a long way to go there. And I think that's probably our greatest area of potential improvements still.

And then last but not least is improving the professionalism of the acquisition workforce. Sean and I just left the award ceremony for the Navy's exceptional performers in acquisition and this is acquisition across the board. It's not just major programs; it's facilities, contracting and general service contracting, sustainment, a whole host of activities that fall under acquisition.

And we don't do nearly enough to recognize our professionals and I’ll be emphasizing that as I mentioned in my response to Senators Levin and McCain.

So with that, I'm going to turn it over to Sean and let him talk about the Navy Superior Supplier Program.

Sean.

ASSISTANT SECRETARY SEAN STACKLEY: Thank you, sir.

I'll briefly outline the initiative that Mr. Kendall described earlier.

An industry best practice is to recognize your best suppliers and to strengthen your relationship with those suppliers. And we looked at this as an opportunity DOD-wide in the pilot program specifically for the Navy this year to provide the recognition, which by itself is a very strong incentive and then following onto that recognition for those superior suppliers to sit down across the table to determine what additional incentives that we could work across a contract would be appropriate to give consideration for that sustained superior performance.

So our -- our first challenge was to how do you in fact identify who the superior suppliers are? And we're looking for a method that is objective, that is clearly understood by industry and frankly the public at large -- and we'll be explaining this in detail to the Congress -- and one that is fairly simple to manage.

And in fact, we've got an evaluation system that's in place today that we use across all of our programs called CPARS, contractor performance and appraisal review system, that is objective, that industry does get the opportunity to comment on. And so when we use that as a basis of evaluating contractors' performance, it's well-understood and we don't expect too much debate.

Now with that said, determining how do you draw the field for your contractors under review, we started by picking the top 30 corporations. And when you pick the top 30 corporations, in fact, you capture greater than 85 percent of your spend for supplies and research and development.

And then we went to the next level and broke those corporations down into their business units and ended up with about 80 different suppliers that we're evaluating. And then we took the top 30 for final evaluation where we're looking at -- based on our obligation data dollars and ranked those top 30 and broke out from that total pack nine companies or business units of a larger corporation that stand out above the rest in terms of their performance, sustained performance over a three-year period as evaluated by the program managers or contracts organizations that they support. And I believe everyone's been handed a presser, a release, that outlines who those nine corporations are. We'll be announcing that formally today and then we'll be engaging with those superior suppliers, as I described earlier, to take a look at what do we do across a contract that, in fact, drives cost into their performance that, when you look at their sustained performance, you might determine is not necessary, given their overall performance and value to the Department of the Navy.

This is a pilot. Now we expect a lot of feedback, frankly, from the winners, and we also expect feedback from the rest of the field. And we'll take that feedback and reshape this going forward as we look forward to the 2015 awards.

UNDER SEC. KENDALL: Thanks. OK, with that, I think we'll take questions. Go ahead. We've got one in the back first. That was the first one, I think.

Q: You mentioned some incentives that seem to be counterproductive. Can you talk more in detail about what those incentives are that don't work?

UNDER SEC. KENDALL: Yeah, it's financial. What we see in the results, and this is based on reporting on a large body of individual contracts. There are cases where when you look at cost and margins that we’re paying a company, I mean, cost and schedule increases we’re actually paying the same profits that they would have received as a margin at lower levels or greater profit for poorer performance, essentially. It's a subset. It's a relatively small fraction of the total dataset we looked at. But there are enough of them that get your attention. And we need to make sure we're aligning profitability with good performance and not bad.

Q: Mr. Kendall, Tony Bertuca, Inside the Pentagon. One of the things the report laments is sort of the budget constraints that sort of drive out the ability to have increased competition. But it says you're looking for some creative ways to kind of maybe artificially insert competition in places like production, where the entry cost is high. What are some of those creative things that are on the table?

UNDER SEC. KENDALL: What that refers to is the desire to create competitive environments for people. So even if -- you know, can you do competition, obviously, at different levels of the supply chain, so that's one thing you can do. The government can break out components. So that's getting direct competition at a lower level. That's part of it.

But there's also the whole idea of creating a competitive environment where people are worried that they're going to lose their business, for whatever reason. You can start some exploratory work on alternatives on the next technology. There's interesting data in the report that shows that when we give sole-source awards, and there is no competition whatsoever, we get very -- we get less effective results than when we have just the threat of competition.

It doesn't have to actually be there. I think it creates a climate in the corporate environment where, if you're worried about losing your business, you're going to work a little bit harder to make sure that you hang on to it. And that's the result that we're after. So that's what we mean by a competitive environment. And there are a variety of things that we can do to try to create those environments.

Q: So artificially, you’re almost creating that threat would be, well, we're going to -- while you guys are working, go explore something in S&T right now?

UNDER SEC. KENDALL: Yeah – it’s starting -- exactly. That's exactly the type of thing we're talking about. Andrea.

Q: Just following up on that, the competitive piece. You know, in an environment where the budget is shrinking, you're seeing less and less competition. You're also being a little bit more precise about what you want. So we've seen a number of competitions over the past few years where you've only had one bidder.

Are you concerned about, you know, the kind of consolidation that's happening, a number of companies are talking about, you know, absorbing suppliers to improve quality and tackle those costs? You know, what do you make of sort of the bigger picture swirling around you and your efforts to increase ...

UNDER SEC. KENDALL: That's a good point. Industry is dealing with the uncertainty of future budgets. So it's hard for them to plan. That's a situation that's existed for a couple of years now. We are seeing some moves in the merger and acquisition world, where people try to reposition themselves for how they see the future. And I think that's healthy marketplace activity. There are some cases where companies are buying suppliers in order to keep them viable. And frankly, there are places where that benefits the department -- it -- keeping those suppliers viable is a good thing.

At the same time, it can restrict competition in the future. So we have to be mindful of that. So we deal with mergers and acquisitions on a case-by-case basis. Our fundamental policy hasn't changed. That -- at the top tier, we think we've seen about as much consolidation as makes sense. Below that, we'll look at them individually and see what the impact on competition, the impact on critical technologies and so on is.

Q: A quick follow-up on your -- in your forward, you talk about the margins and you say that in some cases, fixed-price contracts, you know, those savings are not shared with the government.

UNDER SEC. KENDALL: Mm-hmm.

Q: And sometimes spectacularly high margins for -- can you just -- can you walk us through the margins discussion and where you see...

UNDER SEC. KENDALL: Nothing creates motivation for industry like a fixed-price contract, and multiyears in particular are a lot of motivation. And we're doing much better in our negotiations on multiyears than we have in the past. That's one area I think we're having some success. But industry, when they have that opportunity and they get the entire return of any cost savings that they make, and so that's a high motivation for them to invest. But once we've locked in that multiyear pricing scheme, we don't get any return beyond that.

So, the fixed-price-incentive vehicle, which is usually a share ratio between industry and government, can work for underruns or overruns. And if companies are going to get a great return, we want them to get a good return, we want them to make that investment, we'd like to share in that return. So, fixed-price-incentive contracts give us that. They also give us the information that helps us make better decisions about what the cost structure really is in the contract going forward.

Who did I not get? Yeah, back here.

Q: Thank you for take this. Recently you had been asked by Secretary Hagel to head the defense trade and technology initiative with India. In this position, what are they going to do, what are the priorities now?

UNDER SEC. KENDALL: We're going to continue the work that I started, frankly, with Dr. Carter when he was the deputy secretary. I've actually been working on the trade initiative with India for well over a year now. I've made two trips to India for that purpose. I'll probably be going again later this summer. We haven't set up a specific trip yet. You know, the government's changed there recently, so we want to give the new administration essentially to get in place.

We have a number of offers on the table for India. There's a -- a groundbreaking offer to share in the next generation of the Javelin missile, co-production and co-development. And we've had some encouraging responses from India, but we haven't gotten it to where we're talking about definite possibilities yet. We've also had some good discussions about science and technology cooperation that we need to continue.

So, to some extent, it will be continuing the work that we already started. But we're also looking for additional opportunities, so it's -- I think there's a lot of potential there. We're encouraged by what we're hearing back from India so far. I spoke to the ambassador recently, and he was delighted that we're continuing this initiative.

So, we are formulating a much more specific plan now, but we won't get too, too far with that until we have a chance to talk to our counterparts in the Indian government.

Q: OK.

Q: (OFF-MIKE) right now is? Do you know who your India counterpart is now?

UNDER SEC. KENDALL: It was Mr. Mathur. I'm not sure who it is at this point.

Q: Michael Bruno with Aviation Week. Can you describe or better yet quantify what does it mean to not be a favored supplier in these programs going forward?

UNDER SEC. KENDALL: I think we're trying to let industry know what the customer is seeing from industry, so I think for the industry part, those who are not in that top tier that Sean talked about, that the recognition of where you are, where your business units are, I think is going to be very important incentive for them to find out from their customer what the problems are and to do something about it. So, that's one of the impacts we're looking at. Do you want to add to that?

ASST. SEC. STACKLEY: No, the only thing I would add is typically they get that feedback on a contract by contract basis. Now, when you roll it up at the company level or the business unit level, then you get to start to see a pattern breaking out. And as I described, public recognition is a very strong incentive, and more than that, we do want to sit down and say "you've been a good performer, so let's sit down and figure out what we can do across a contract that, within our regulations, that makes sense to provide added incentive to stay on that path."

Q: Sean Lyngass with Computer Week. Some critics of the acquisition and reform process, and I know you don't like the word "reform," but the adjustment have said that it's kinda cyclical, and we get the same suggestions over and over again, which may be good, like work force improvement, but don't tackle the real problem. My question is how do you measure your progress year by year? I know that's -- that's a long process, but maybe in each authorization bill or that sort of thing.

And the related question to that is, are you prepared to treat I.T. acquisition different from weapon systems? In a recent hearing, it was posed to you, and it doesn't -- it may not make sense to have Nunn-McCurdy-like checks on I.T., but something similar might be in the works at Congress. Can you comment?

UNDER SEC. KENDALL: Yeah, I -- I share your views on the cyclical nature of some of our acquisition reform efforts in the past, and that's the reason that that report that we're publishing is -- exists. So, we can start looking at the data and trying to correlate results to policy. And we -- we somewhat surprisingly, perhaps, found very few correlations when we did -- with a number of different variables that were analyzed last year, for last year's report.

My view on that is we have, we have used conventional wisdom, which tends to oscillate. Right, if we're not doing very well right now, what we're doing right now must not be the right thing, so we'll try the other thing. And we've gone back and forth a few times. I want to learn from the data. And that's why I think it's so important to look at what is actually happening on the ground.

The other -- the other point I'll make about that is that acquisition's incredibly complicated. You have to get a very large number of things right to do well. And if you get any of them wrong, you can -- you can have poor results.

Requirements are bad, the business deal is bad, the management is bad on either the government or the industry side, or just kind of the big picture things you have there -- the technology's not ready. So, you've got to get all of that right. And -- and that requires professionalism across all the disciplines that are engaged in doing those things. And I think at the end of the day, that's where we need to focus more than anywhere else.

On IT -- we have a number of sets of rules right now for different types of things that we develop. And we have rules for major automated information systems, which are essentially IT. Major acquisition programs, weapon systems, business systems, and rules that cover IT specifically.

I think we need to simplify that body of law, and not make it more complicated. I've got a task force working now under Andrew Hunter. He's working with the Hill, with both sides of the aisle. And -- both sides of the Hill, rather. And -- and both sides of the aisle. And we're trying to come up with a body of -- a legislative reform initiative, essentially, which will simplify the body of law that we have.

IT is also pervasive. It's in everything. So, when you start to write rules about IT, you're writing rules, in a sense, for everything.

And some systems, like business systems, are very different than other systems like command and control systems, which tend to be military-specific and unique to the military, and -- and that we develop ourselves. Whereas business systems, we essentially buy a system and we modify it to suit our needs.

Introducing them to the field is very different. For our command and control system, you -- you will generally take out the old one and put in the new one. For a weapons system, you do the same thing. But for a business system, you got to keep the old system running until you get the new one up and running at the same time.

So, it's a -- it's a different category, if you will. And we need the flexibility to manage each of these things in the way that's best for that particular product or that particular situation. And in general, I'm opposed to rules that tend to be inflexible, and think that they're imposing best practices on us. Because we have such a complicated body of work that we do, rules that don't allow us flexibility are not helpful, frankly.

Q: A quick follow-up -- when might we see Mr. Hunter's work on the Hill bear fruit in legislation?

UNDER SEC. KENDALL: We'll have something for the next cycle. Won't make it into the '15 cycle, but we're going to have something for the '16 cycle.

Yeah?

Q: The list is not necessarily a surprise in that a lot of these names are well known, and they're kind of considered the top-tier contractors in general. You talk about how this is going to incentivize people to try and break into this list. And yet, does it seem like maybe it will be less of an incentive, because companies feel like they can't break into this tier, no matter what they do? That -- you know, does it kind of set up a -- a preferred suppliers list, and then everybody else is left out?

UNDER SEC. KENDALL: I think we'll see this list shift around. I think people will respond. I think the people that will respond the most are the people in the bottom tier, frankly. People that want to get out of that tier, and that's -- that's exactly the kind of behavior we want to see from people.

Sean, do you want to comment on that?

ASST. SEC. STACKLEY: Yeah, I will. The – I described up front 30 corporations. Break it down to business units. 80 business units or companies. What you'll see is a lot of familiar business units of corporations, but you're not seeing all their business units. So, I expect that inside of a major corporation, business unit A and business unit B are having discussions about why one is and one is not on the list, in addition to the other companies that are going to be striving to get -- get across the line.

UNDER SEC. KENDALL: The -- you know, we want to recognize the good performers, but we also want to motivate our performers who are not on that list to do better. And that's a big part of what this is all about.

Tony?

Q: (inaudible). Can you elaborate as clear as you can what being on this list means versus what it doesn't mean? Will it impact source selection criteria? And if you compare this with the 2000 -- September 2010 Better Buying Power Initiative, when this was first outlined, there were tangible benefits of favorable progress payments, better treatment and weighted profit guidelines. A lot more tangible than initiating discussions with the companies, which I -- I acknowledge is important. But it seems like it's been reduced or pared back. Can you give the rationale for that?

And I had a separate question for Mr. Kendall, but I don’t want to ask you while...

UNDER SEC. KENDALL: Good.

ASST. SEC. STACKLEY: Yeah. The -- the discussions with the companies -- rather than us roll out, "Here's exactly what we think is a good incentive for you," we want to engage in a -- in a true dialogue with the companies over what makes a difference to them? What is that we do that drives cost into their programs or their systems or their processes so that we can back that off and by backing that off help reduce their cost, which should return profit to them. So rather than us dictate, let's have the discussion to figure out what makes a difference.

ASST. SEC. STACKLEY: The second -- your actual first question with regards to getting on the list versus not getting on the list...

Q: Source selection, a lot of people say hey these companies may have a leg up in source selection criteria.

Is that an accurate perception?

ASST. SEC. STACKLEY: No. No but yes and here's why.

Because we're using the CPARS system to rank the suppliers at the business unit company level, all of those same CPARS are also a central element of past performance criteria that's present in all of our competitions. So if you are not on the list and you're competing against somebody that is on the list, that's a clue to you that his CPARS outperform your CPARS.

Q: I want to be clear. This is not being on a list? Superior Supplier Incentive Program is not a check mark on a source selection that...

ASST. SEC. STACKLEY: No.

(CROSSTALK)

ASST. SEC. STACKLEY: No but that's a route.

UNDER SEC. KENDALL: Tony, the reason it took us so long to roll this out was because of the difficulty of doing some of those things you talked about, OK.

We didn't want to give people -- we want our competitions to be fair, and we didn't want this to influence source selection. So this is largely about past performance, not future performance.

So the CPARS are an element in source selections because past performance is often an element but that's unchanged. And what Sean said, this does let people know their relative standing in that, which I think is valuable information to companies to have. It'll tell them where they need to improve, which is a good thing.

But we are looking at things we can do without a legislative change that'll allow us to reduce some overhead perhaps that companies have, which would be beneficial to them indirectly for all competitions, right, based on the fact that they have consistently performed well.

Q: (inaudible) question for you.

The RD-180 engine a couple -- about a month ago is one of the hotter subjects I've heard...

UNDER SEC. KENDALL: You're changing subjects on us here.

Q: Well, this is -- this is an issue because you're going maybe compete for new engines...

UNDER SEC. KENDALL: Go ahead.

Q: You've got the task force's reports recommending a new program, an engine program to replace this Russian engine that's performed well.

What's your latest thinking on going forward with this?

UNDER SEC. KENDALL: We haven't made a decision yet. I'm sure you're well aware, it's an interagency issue, it's not a just a DOD issue. We have a need for national security launches. There are other, you know, launches as well.

So the report's been a very valuable input. We've done some risk-reduction things to start them anyway, based on the report. But we're still in the process of considering all of our options there.

But there is a -- we are motivated, if we can do it, to remove the dependency that we have. We would -- we would like to do that. We haven't figured out exactly how to get there yet.

Let me get way in the back.

Q: Chris Davenport from the Washington Post.

Going back for a minute to competition, we heard earlier that there were some high-profile contracts that went out that only had one bidder. There's another one coming up that's not being bid that some think should. The Army helicopter training program now is going out and buying a hundred Lakotas.

I wonder what your thoughts are on that. Do you think it should be bid? I know it's part of a larger restructure program but I'm wondering how that program fits with the ethos and -- and sort of the culture that you're outlining here.

UNDER SEC. KENDALL: One of the reasons that we've gotten single bids in a couple of the cases -- and that came up earlier, I didn't address it -- is that we are trying to define for industry more clearly than we have in the past what -- what constitutes best value for the department.

And I think we need to do that. I think it -- it keeps competitors who have no shot whatsoever of winning from bidding bids in that is really just wasting their B and P money. It still allows us to have a competitive environment. I think in the cases where that's happened, people have bid, I think, aggressively, we've been able to get good prices from the competition per se anyway. And I'd rather communicate to industry what our real needs are, how we value different levels of performance so industry can make intelligent decisions about what to bid.

It's also designed to stimulate innovation. If people know, we’re willing to pay more up to a certain amount for better performance then they're motivated to go figure how to do that for us because that'll be a competitive advantage. So we're trying to move more in that direction.

The history for the department -- I can speak to this from industry as well from my experience there -- is that when we put out threshold requirements and objective requirements, industry knows that we're not giving any credit for those objective requirements. We're just taking the threshold bid at lowest price basically, which is essentially an LPTA bid.

We -- we will and we should pay more for more value. We just got to stay within our affordability caps to do that. So that's the idea behind that, and I think it's the right thing for us to do.

Lakota, I can't say much about that one. I believe it -- essentially, it's the business case. And it's the -- the issue of having a mixed fleet potentially versus, you know, additional sustainment for the same type class, if you will, in the inventory. The Army has a pretty good inventory of those already. So this is a marginal increase on that inventory, not a dramatic one, and I think the right business decision.

And I think Gabe is here. You might want to -- Gabe Camarillo-- from the Army is here. You want to address that?

(UNKNOWN): That's exactly right sir.

Q: Quickly, back on superior supplier, the list you got today looks like they're all pretty big companies and also they all appear to be in the product business. I'm just wondering if you've looked at whether it's feasible/desirable to extend this to small and mid-tier firms and/or services, people in the services business?

ASST. SEC. STACKLEY: Yeah, we're going to take a look at that in the course of this next year. For the pilot, we literally went down our largest, you know, suppliers by dollar value to come up with a feasible approach here. But in doing that what does break out is a lot of different sizes. So you have a heavyweight against a lightweight. And while we normalize all this through the CPAR system, we would need to be careful that what we're not doing is excluding superior suppliers that are below that cut line that we established. So we're going to take a hard look at that.

UNDER SEC. KENDALL: Yeah, the checkered shirt, go ahead.

Q: Hi. Sam LaGrone with USNI news. Just a quick question on the superior suppliers list. So it seems like, you know, there's nine organizations in alphabetical order here. What about the other 71? I mean, are they aware that, you know, are there separate tiers that they're going to be informed of or there's going to be further disclosure on who the others are?

ASST. SEC. STACKLEY: You know, we -- they won't be tiered as such. But that information will be made available.

UNDER SEC. KENDALL: Yeah. Blue shirt.

Q: Michael Bruno, Aviation Week. Sometimes it seems like you're only person in the building who's in favor of PBLs anymore, according to a lot of people in industry. (Laughter.)

Q: Can you give us a sense as to how you're going to try to push that?

UNDER SEC. KENDALL: We're going to look hard at this. Disappointingly to me, we're not increasing the amount of PBLs we're doing, and I think that's largely a workforce issue, capacity within the workforce. PBLs are -- they require more training of our people. They're a little harder to implement contractually and they're harder to execute and administer contractually. But we need to go in that direction. They work.

What's happened to our workforce is the demographics of our workforce is such that we've brought a lot of relatively junior people in the last few years. So there’s a training process we have to go through for them. But when I got the recent data on PBLs, I was disappointed. And I'm going to take a harder look at that and start tracking that much more carefully. It's the right way to do this, assuming that you can structure a deal correctly -- administer it properly. So we're going to try to improve our numbers there.

Let me come back to Andrea.

Q: Just a quick follow-up on the PBLs, if you have data can you tell us what the percentages are and ...

UNDER SEC. KENDALL: I'll have to get that for you. I don't have that handy.

Q: OK. And then, I just -- I know it's off topic, but because it's blowing up all over the place with Iraq and that -- is there -- are there possibilities for you to accelerate the weapons sales that have already been approved for Iraq and get equipment there faster?

UNDER SEC. KENDALL: Yeah.

Q: And to what extent are you able to, you know, maybe more quickly cycle through additional requests?

UNDER SEC. KENDALL: I'm going to ask you to come back and talk to Admiral Kirby about that one. He's going to be, I think, talking to the press this afternoon. And he'll deal with Iraq and other current events. And I'd rather stay away from that right now. Chris? Marcus, I’m sorry.

Q: A year ago, the report basically said the same thing about helicopters, how they're breaching a lot more than other programs. And it says there's still -- still needs to be looked at it. I guess, what have you found out in the past year on that subject?

UNDER SEC. KENDALL: We don't have root cause analysis yet on why that's the case. It's just something we haven't gotten to, frankly. I don't know if the Army has anything. They’re the greatest purchasers of helicopters.

Gabe, can you address that?

GABE CAMARILLO, PRINCIPAL DEPUTYASSISTANT SECRETARY OF THE ARMY (ALT): I think the biggest challenge as you said, sir, is sequestration and the budget pressures that reduce our ability to buy quantities…

UNDER SEC. KENDALL: This looking back over 20 or 30 years of procurements. And as a class helicopters have greater cost breaches and schedule breaches than other commodities. My experience with the Army's main line programs going back to Cheyenne many, many years ago, the Comanche, is that ambitious technical goals, perhaps too ambitious, and then funding that was stretched out over a very long period of time. That wasn't adequate really to get everything done that needs to be done. But that's just based on experience. That's anecdotal.

ASST. SEC. STACKLEY: I mean, I would add underestimating complexity.

UNDER SEC. KENDALL: Yeah, that's ...

ASST. SEC. STACKLEY: The H1 program when we went to the upgrades, underestimating the complexity of that. The MV-22, people are well familiar with the history of underestimating the complexity of that.

UNDER SEC. KENDALL: Yeah.

ASST. SEC. STACKLEY: It's been a challenge.

Q: Leigh Munsil with Politico again. You mentioned that you don't like the phrase "acquisition reform," but the Hill doesn't share your reservations on that. So I'm wondering, Congressman Thornberry’s effort, how -- how much can you learn from the Hill that you don't already know about Pentagon acquisition issues? And what's the role of the Hill versus the role of the Pentagon? How seriously are you taking his effort and how much are you working on it?

UNDER SEC. KENDALL: I've met with Congressman Thornberry and we're working very closely together on this, actually. I -- you know, I prefer "acquisition improvement" because I think it's a more accurate description.

Whatever the label, I think we're talking about basically the same thing. What I object to is the idea that there is some magic thing we can do, some silver bullet that we haven't found yet that's going to dramatically improve the results. I don't think it's that simple.

I think we've tried most of those. And many of the things -- I mentioned this in a testimony before the Senate Armed Services Committee recently -- many of the things that we have tried from the data, from the statistics (inaudible) last year and this year, don't seem to be having much of a discernible effect.

Now, part of that is that it's hard for us to be consistent about what we do because leadership changes relatively often. One of the things I hope to do is be in this position long enough to have some consistent policies over a period of years so that we can actually understand the implications of those policies and whether things got better or not.

That's part of it. And the data is very noisy. There are so many things that impact budget situations, like sequestration, for example, that impact. It's very hard to pull out of the data, the results. My own view is that there has to be a professional, concerted attempt to identify all the things that can be done to improve acquisition and address them.

And what we try to do -- we try to do in Better Buying Power is sort of a Pareto process where you look at the different things you could do and you emphasize the things you think will have the greatest impact, hopefully based on actual measurements, and you focus on those. And as you make progress on those, then you go back and you reassess, and you say, "OK, how are they doing and are there other things that we need to be focusing on now to drive out costs and to improve performance?"

And I think that's the right way to think about this. That's a form of acquisition reform in itself, I think, to approach it that way, as opposed to hypothesizing that if we do just fixed-price contracts or we rewrite 5000.02 or we create a new office, that things will all of a sudden get better. I don't think that that's the case.

Q: It sounds like the Pentagon perspective, which obviously that's your role to give, but what can the Hill tell you that you don't already know?

UNDER SEC. KENDALL: What Congressman Thornberry and I have talked about is simplifying the rules so that they're more comprehensible, so they're easier to understand, they're easier to implement, they're more straightforward. When I redid 5000.02 last year, is struck me how incredibly complicated and difficult it is for a program manager just to sort out all the requirements that he has to follow.

And we should be able to simplify that and not sacrifice the intent behind those rules. Now, they've been built on in layers ever since Goldwater-Nichols. There have been layers of acquisition reform or acquisition improvement in one form or another add on. Many of them have been very good. They're all well motivated. But that total body of law now is very large and complex.

The same is true of the DFAR. It's worthwhile, and I'm not doing this right now, but there is an effort that we're working with the Congress on to take a look at the DFAR and the FAR to see if we can simplify that as well.

MODERATOR: One more question.

Q: (inaudible) in addition to the Javelin missile that you mentioned in previous remarks, what other products are you offering to India for co-production and co-development? Do you have a list of those products?

KENDALL; Yeah, we have a list. And as I recall, there was a helicopter program. There's a -- I want to say there's an unmanned aerial vehicle program. We have an artillery piece. We have a number of things in different stages of process. I think we had a list of several. I'll tell you what, we'll get you the current list, OK? So you have exactly the right list.

Q: (inaudible) ask you one thing. Obviously, Huntington Ingalls is not on this list. They're you're biggest -- biggest shipbuilder, the nation's biggest shipbuilder -- military shipbuilder. Can you give a sense of why none of their units are on the list, given their enormity?

ASST. SEC. STACKLEY: Well, let me go back to the basic method that we used to arrive at the list. We went back to CPARS, which are filled out by the program managers over a three-year period. So you start by taking a look at the programs at Huntington Ingalls Industries and you add those all up across the three-year period. The size of the contract doesn't -- is not a determinant on whether or not they are on the list. It's the performance inside of the contracts that's the weighing factor.

Q: Well, what does it tell you about Huntington Ingalls' performance over the last few years on your biggest programs?

ASST. SEC. STACKLEY: Well, let me say, you're looking at the nine at the top; out of the 80 companies or business units that we evaluated, so the below the cut-line for the top nine. In terms of our concerns with their performance, we've been very direct with them where they have issues. And by the same token, we've also recognized where they've done well. In the aggregate, they didn't make the cut.

STAFF: Thank you, everyone, for coming. I'll follow up with you later, if you want any of the content of the -- all the materials that we handed out.
 

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