Pentagon plans changes in buying practices

The largest procurement scandal in decades is precipitating changes in the way the Pentagon buys its services and equipment, according to senior Pentagon officials. But some are afraid that means stricter acquisition regulations, which may end up hurting innovation in business practices.

Serving as a case study for abuse, the thwarted Air Force deal to lease tanker planes from Boeing has left its imprint on the Air Force, which has seen resignations in its leadership and difficulty filling those positions. The service not only was forced to reconsider its bid for the tanker but is also referring at least three other programs for investigations.

In the $23.5 billion tanker deal, the Air Force and Pentagon leaders decided to accelerate the leasing of Boeing’s tankers without considering other suppliers. They focused on justifying the contract without taking into account the proper acquisition strategies for large-scale programs, according to a Pentagon inspector-general report released Tuesday.

The report topped a three-year investigation into the debacle, which led to the resignation of Secretary of the Air Force James Roche and the imprisonment of two Boeing executives.

The problems surfacing from the tanker fiasco have prompted the Senate Armed Services Committee to mandate greater Pentagon acquisition integrity by including several provisions in its defense authorization bill, one of them requiring congressional oversight for big-ticket weapons programs that are accelerated under procedures reserved for commercial items.

Testifying at a committee hearing on the investigation report Tuesday, Gordon England, acting deputy secretary of defense and secretary of the Navy, said the Pentagon has incorporated many “individual corrective actions in our acquisitions processes” as a result of the tanker scandal. However, he emphasized, “The final answer to past problems may lie in a complete restructuring of the way the department accomplishes acquisition for all of its goods and services.”

At the behest of Sen. John McCain (R-Ariz.), who played a pivotal role in foiling the tanker deal, Gordon said the Pentagon has started a comprehensive study.

In his recommendations, Inspector General Joseph Schmitz said the Pentagon must change the cultural environment to ensure proper control is reestablished for major weapons-system buys.

“The tanker issue is an issue, but that in and itself should not lead in dramatic changes in rules and regulations,” said Stan Soloway, former deputy undersecretary of defense for acquisition reform and now president of the Virgina-based Professional Services Council, a trade association representing the government professional and technical services industry.

The lease deal has created a fearful environment, he asserted. “[There’s] fear of making a mistake; fear of making a decision if you are going to be the one pilloried in the public square. It is hard to be innovative.”

Soloway said he agrees that Congress is examining some legitimate issues. “But the more you overreact to it, the more it is going to diminish innovation and the people’s desire to take any risk at all,” he said.

Looking at rules in cases of violation is very important, he said, but he explained that making a lot of changes based on a few instances rather than very clear patterns “is a mistake.”

Tighter controls are necessary, not tougher rules, said Soloway, who worked under former Defense Secretary Bill Cohen. “Despite the rhetoric we hear from people, nothing has happened that to me would in any way justify an indictment of the reforms of the last decade.”

Apart from calls for reform, the tanker controversy led to the creation of a federal task force on procurement fraud, led by U.S. Attorney Paul J. McNulty in Alexandria, Va.

With the completion of the report and ensuing hearings, the “logical conclusion” is going to be change, said Keith Ashdown, vice president for policy at Taxpayers for Common Sense. “The Senate committee will still build their case for more reform, and you are going to see more oversight done,” he said. If reform takes place it will be “piecemeal” rather than “an omnibus-type reform bill,” he said.

For the Air Force, change for now means reverting to a traditional approach to its tanker program.

“We have learned from this experience and intend to pursue large-scale-system acquisition under more traditional contract structures,” said Doug Karas, an Air Force spokesman. “We learned through various investigations that commercial acquisition strategy [for the tanker] is not the right strategy for those.” He said the Air Force is expecting more guidance from the secretary of defense on commercial acquisition.

Under the so-called traditional acquisition approach, the department has oversight of the product and all its development stages. That way, Karas explained, the government not only follows the development but can have insight into the costs the contractors incur.

To proceed with the tanker program, the Air Force is expecting the results of an analysis of alternatives in August. “We established a tanker-program office in the last month to deal with the recommendations. We do not want to wait until the decisions are out.”

What is certain is that there will be competition for the program. European defense giant EADS, the parent company of Airbus, has been jockeying for position to bid for the program. The Air Force expects to open competition for the tanker in 2006 and have the first tanker by 2010, Karas said. The number of tankers has not been determined.