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Competition in Defense Acquisition: A Comparison of Perspectives

By Nir N. Brueller, David R. King*, and MAJ. Rojan Robotham

A contrast of comparable programs involving fighter aircraft and unmanned aircraft vehicle (UAV) programs within the United States and Israel highlights the need for strategic agility in defense procurement. We find that increased oversight of defense procurement tends to increase cost and time required to field capability, creating a need to balance the benefits and cost of oversight. The comparison of acquisition programs offers additional policy recommendations in the design and implementation of defense procurement.

Acknowledgements:

The authors appreciate comments by Caitlin Lee and Jay Pereira on a prior version of the manuscript. Authors are listed in alphabetical order.

Financial support from the Henry Crown Institute of Business Research in Israel at The Faculty of Management, Tel Aviv University is gratefully acknowledged.


Concerns over competition increase as the number of defense firms continues to decline (Driessnack & King, 2004; Ricks, 1996). Still, familiar terms, such as competition, price, supply and demand, due to the unique nature of the defense industry often have different meanings than they do in a competitive market system (Driessnack & King, 2004; Peck & Scherer, 1962; Sapolsky & Gholz, 1998). In a market system, an industry is typically defined by firms that offer similar products and services to customers; however, the defense industry is defined by firms offering differentiated products that share an ability to do business with a single customer—the government (Driessnack & King, 2004). The government defines the laws and regulations and, as the predominant buyer of defense goods, sets demand. The government also monitors prices with the Defense Contract Audit Agency (DCAA) in the United States (U.S.) setting labor and overhead rates and auditing supplier costs among other services (DCAA, 2012).

Defense procurement practices, in the U.S., are largely codified in the Department of Defense (DoD) 5000 series regulations initiated in July 1971 by Deputy Secretary of Defense David Packard (Przemieniecki, 1993). Still, the structure of the defense procurement environment traces back to World War II practices that were formalized in the Procurement Act of 1947 (Green, King, Rappaport, 2002; National Archives, 2012). A consistent focus of reform, by the end of the Cold War, the resulting system of laws, regulations and policies governing defense procurement comprised over 30,000 pages of regulations issued from 79 different offices (Gansler, 1986; Perry, 1994). Since then, the byzantine process has only become more complex.

For example, the 2008 update of DoD Instruction 5000.2 Operation of the Defense Acquisition System corresponded with the document growing 116 percent (from 37 to 80 pages) to incorporate direction from six National Defense Authorization Acts (Systems Engineer, 2012). The end result is that the current U.S. defense procurement process has evolved from a basic structure established following WWII into something a Pentagon policy chief described as bizarre (Shachtman, 2009). However, the application of procurement oversight varies.1

The purpose of this paper is to compare the application of procurement practices and map their effect on outcomes, such as cost and time, in an effort to identify how to better manage defense procurement. This is primarily accomplished by comparing the F22 Raptor and MQ-1 Predator programs in the U.S. with corresponding Israeli programs. The Israeli programs reviewed are the Lavi fighter and the Scout unmanned aircraft vehicles (UAV). The programs selected are comparable and rough contemporaries. For example, the resulting budget for both U.S. programs required the highest level of oversight (ACAT I); however, the experience of both programs is dramatically different. The F-22 program is an example of a program that started with ACAT I oversight with the result that it took longer and purchased fewer aircraft, and the MQ-1 involves a program that grew into an ACAT I program from an Advanced Concept Technical Demonstration (ACTD). Comparison shows that defense programs’ oversight impacts schedule and cost, and that programs are sensitive to changes in the geopolitical environment. A common criticism of defense programs is that they lack strategic agility to cope with these changes.

We use the concept of strategic agility to frame our comparison of the selected defense programs. We start by reviewing strategic agility and its components. Next, we describe the U.S. and Israeli cases respectively.2 We then map the differences between the cases across the key dimensions of strategic agility and identify options for improving defense procurement outcomes. Specifically, we pay attention to the impact of program oversight on strategic agility. Finally, we conclude by identifying methods that could foster agility in defense procurement that may also increase competition.

Strategic Agility

In organizational contexts, agility is defined in several ways. In manufacturing, agility refers to providing the right product at the right price anywhere (Roth, 1996). In strategic management, it evokes staying nimble and flexible, open to new evidence and remaining open to new evidence to change direction in light of new developments (Doz & Kosonen, 2008). Synthesizing information on strategic agility suggests three enabling components:

  • Knowledgeable sense-making: Superiority in sensing and processing relevant information from a deep involvement in the environment with preferential treatment to providers of needed information that allows the agile organization to be the first to notice and address emergent trends.
  • Nimble decision making: Responsive actions resulting from an understanding of the organization’s position and capabilities within its environmental context that leverages developed heuristics.
  • Rapid resource redeployment: Fast implementation to capture identified opportunities, particularly in acquiring and deploying the necessary resources to seize opportunities.

Organizations operating in changing environments need strategic agility. Continuous change results from shorter product life cycles and emerging technologies that create a heightened pressure to respond with agility. This trend increasingly extends to governments that are used to buying weapon systems with persistence or products that do not become obsolete for decades. With this in mind, procurement practices evolved to protect the government from waste, fraud and abuse, and to ensure good stewardship of the taxpayer’s money (Taibl, 2008). The importance of these goals is unquestionable, but they come with costs. As Taibl puts it: “the process has become risk-averse, cost insensitive, failure intolerant, somewhat adversarial; and has given rise to a bureaucratic labyrinth that makes it all but impossible to assign accountability” (2008: 3). In other words, the cost of oversight expands as monitoring and enforcement becomes more complex (Hill & Jones, 1992). We next examine the implications of oversight to programs in the U.S. and Israel.

F-22 Raptor

The F-22 started within the defense procurement process as an ACAT I program in 1981, when the Advanced Tactical Fighter (ATF) program was initiated to replace F-15 aircraft (King & Massey, 1997). Identifying and validating a requirement represents the beginning of a program and related oversight, and the F-22’s requirement document was 85 pages long (Global Security, 1985). By comparison, the U.S. Army’s contract for the first Wright Brothers aircraft was three pages, including the requirement (Sokolow & Green, 1999). Government requirements are generally flowed down to all suppliers on defense programs, and this can represent a significant burden as modern contracts for a major defense program are typically hundreds of pages long and ripple across 1,000 suppliers (Kotz, 1988; King & Driessnack, 2007).

F-22 Raptor (U.S. Air Force, 2012)

For the ATF, the first contracts were awarded in 1985, when seven initial development contracts were awarded (Wall Street Journal, 1985). The field of seven firms competing for the ATF was later narrowed to two prototypes: 1) the YF-22 made by Lockheed, General Dynamics and Boeing, and 2) the YF-23 built by Northrop and McDonnell Douglas (Charles, 1987). In August 1991, a competitive fly-off of the prototypes resulted in the award of the development contract to Lockheed3 who served as the prime contractor for the F-22—ten years after identifying the requirement (Schine, 1991; Wartzman, 1991). The F-22 program then entered what became a lengthy development program with two prototype aircraft. However, the delays were both technical and political.

loc-6-f-22The initial requirement from the Air Force was for 750 F-22 aircraft, but budget cuts kept the final total much lower. By 1991, the DoD reduced the procurement quantities to 648 F-22 aircraft, but this was further reduced following a 1993 bottom up review (BUR) to 442 aircraft (Global Security, 2012). Following the end of the Cold War with the Soviet Union, there was a call for a “peace dividend” or a reduction in defense spending that was labeled a “procurement holiday” during the Clinton administration (King, 2006). The Clinton administration’s 1993 program cut contributed to cost increases that were magnified by Congressional budget cuts in 1993, 1994 and 1995 that created continued fluctuation in the F22 program (Global Security, 2012). In 1996, a Joint Estimate Team review led to a program restructure after it recommended reduced production funding that was subsequently approved in a February 1997 Acquisition Decision Memorandum (GAO, 1998). Next, a Quadrennial Defense Review, in 1997, reduced planned production of F-22 to 339 aircraft and the production rate from forty-eight to thirty-six aircraft a year (Arms Control Center, 2012).

Notably, all of these changes were made before the first flight of a production aircraft. The first production representative F-22 took to the air from Lockheed’s Marietta, GA facility on 7 September 1997, or 74 months following the award of the development contract (Kandebo, 1997; King & Driessnack, 2007). The impact of cuts in F-22 funding and quantities only put additional pressure on the program, as the large fixed cost of development resulted in the purchase of fewer, more expensive aircraft. Lockheed’s Marietta, GA plant was ultimately set up to build thirty-two F-22 aircraft a year—a rate that was subsequently not funded and contributed to higher fixed costs.

Changes to the F-22 program continued following its 1997 first flight. In 1999, the House of Representatives voted 379 to 45 to cancel the F-22 program’s funding (Squeo, 2003). The result was increased oversight with the DoD establishing a set of specific goals for the F-22 program each calendar year that were set and reviewed by a Defense Acquisition Board (DAB) twice a year. Only five percent of the required testing for the F-22 was completed by 1999 and Congress refused to approve the start of F-22 production (Global Security, 2012). Instead, Congress mandated additional testing and approved funding for six additional F-22 test aircraft. In March 2001, following DAB approval, the F-22 program entered low-rate initial production (LRIP) and the assembly of the first production aircraft began. However, changes continued.

In 2004, Program Budget Decision (PBD) 753 removed $10 billion in funding, or approximately one-third of the planned budget, and it lowered production quantities to 183 aircraft (Grant, 2008). Later, funding was added for long lead items for four aircraft to enable the administration following the 2008 election to decide the F-22 program’s fate. In 2009, F-22 Raptor production was ended by Secretary of Defense Robert Gates in a process that included DoD personnel signing non-disclosure agreements, the threat of a presidential veto if Congress reinstated F-22 funding, and implied cuts to Lockheed programs if the company fought the decision by lobbying Congress (Shachtman, 2009). F-22 production equipment was stored after the last parts were made and the final F-22 first flew in March 2012 (Majumdar, 2011, 2012).

To put the turmoil in perspective, it took a decade from identifying the requirement to selecting a design, and another decade from Lockheed winning the development contract for the first production aircraft to be put on contract. Still, Initial Operational Test and Evaluation (IOT&E) to determine operational effectiveness and suitability did not begin until April 2004. This pushed the full rate production decision to April 2005 causing concurrent development and production that resulted in ninety F22 aircraft being purchased under low-rate initial production. This amounted to effectively half of F-22 aircraft being part of LRIP, when Department of Defense Instruction (DODI) 5000.2 suggests LRIP quantities be minimized and rationale provided for exceeding 10 percent of the planned production (DAU, 2012).

In the end, budget cuts spanning two decades resulted in 175 F-22 production aircraft, or a purchase quantity that was 23 percent of the initial requirement. Even with lower production quantities, F-22 development and production spanned three decades. The increased time in the defense acquisition system decreased efficiency and contributed to higher program costs and lower production quantities. The dramatic impact of budgetary pressures on the F-22 program over time is clearly evident in Figure 1.

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MQ-1 Predator

The Predator program had a non-traditional start as a commercially developed item that the government later procured. Neal and Linden Blue, or the Blue brothers, bought General Atomics from Chevron for $50 million in 1986, and later integrated the assets of Leading Systems, a firm that made an UAV that had gone bankrupt in 1990 (Singer, 2009). The Blue brothers believed in UAV technology and began production of the renamed “Predator” without a customer (Singer, 2009). However, the UAV division took form as General Atomics Aeronautical Systems Inc. (GA-ASI) in 1992, and it would grow into a multi-billion dollar business.

In January 1994, GA-ASI was awarded the first of many government contracts for the MQ-1 Predator as part of an ACTD that lasted from January 1994 to June 1996. With a first flight in July 1994, only seven months passed from the initial contract. In an early example success, Predator deployed, even before the ACTD was complete, to the Balkans from July to November 1995 as part of Operation Nomad Vigil (Thirtle, 1997). Under the ACTD, the MQ-1 Predator was the ‘prototype’ for managing weapon systems outside the DoD’s 5000 series regulations (Thirtle, 1997).

MQ-1 Predator (U.S. Air Force, 2012)

The MQ-1 exhibited an increased partnership between the government and industry. While GA-ASI built the MQ-1 aircraft and ground support station and used equipment from L3 Communications for Ku-band SATCOM and line of site (LOS) datalinks (L-3 Communications, 2012), the sensor was provided from Raytheon as government furnished property. This meant the government retained liability if there were issues with how the resulting system performed. As a result, responsibility for MQ-1 integration was shared between GAASI and the government. While not the norm, the government and contractor team largely managed this relationship successfully.

The success of the Predator program resulted in an August 1997 Acquisition Decision Memorandum (ADM) granting Milestone III approval that placed the Predator system in full rate production and operational support. This means all previous phases and milestones in the procurement system were effectively skipped. The ADM also established the Predator program as an ACAT II program and delegated acquisition decisions to the Air Force (Cupp & Levine, 1998). In 1996, this level of oversight was consistent with the planned program’s value of $1.42 billion (Cupp & Levine, 1998). In 1997, this funding covered the original program of thirteen systems with one system consisting of four air vehicles, sensors, communication links, and a ground control station.

loc-6-mq1The MQ-1 Predator, in 1998, became the first ACTD program to transition into the defense procurement process and be managed by a military service (Frisbee, 2004). In a thirteen month period between the completion of the ACTD in 1997 and the transfer of Predator to the Air Force in 1998, the government worked to create the foundation to support a small fleet of aircraft. Personnel working on the ACTD completed four of over forty possible documents required of an ACAT II program at Milestone III: 1) an Operational Requirements Document (ORD) completed by Air Combat Command in June 1996; 2) an acquisition strategy and 3) an acquisition baseline were completed with the help of the Air Force in 1997; and 4) a Test and Evaluation Master Plan (TEMP) was completed after approval by the Air Force Operational Test and Evaluation Command (AFOTEC) in the fall of 1997 (Cupp & Levine, 1998). In creating program documents, the Predator team focused on the core documents concerned with what was required, how it would be purchased, and how to validate that it worked.

This was highly unusual and two exceptions help to demonstrate the extent MQ-1 Predator deviated from the norm. The first case relates to operational testing. Generally, operational testing is complete prior to Milestone III. However, the MQ-1 Predator did not even have a test plan until after the Milestone III decision was made. Further, when initial operational testing did occur, in 2003, the MQ-1 Predator failed with several issues identified (Macias, 2008). The relatively late identification of issues increased the challenge of addressing problems at the same time as the system was being produced and used operationally. The second exception relates to the number of MQ-1 Predators produced prior to Milestone III. If the total program was for thirteen systems, then quantities produced prior to full rate production should have been one system, or four aircraft. However, the number of MQ-1 aircraft purchased prior to 1998 exceeded ten percent of the final total of 268 MQ-1 Predators.

Management of the MQ-1 program by the Air Force began in Big Safari. Big Safari has managed Air Force special projects, since 1952, with the goal of acquiring one-of-a kind, classified surveillance assets (Frisbee, 2004). In an unusual step, Congress suggested the Air Force use Big Safari’s streamlined acquisition and management program for Predator (U.S. House, 1997). This endorsed Big Safari processes that shorten the timeline from developing to fielding systems by leveraging technology and reducing the number of program reviews, testing requirements, and documents typically required (Whittle, 2011). The Big Safari model delivers 80 percent solutions quickly and it has proven effective for prototypes and limited quantity programs. An example of Big Safari’s responsiveness involved integrating laser designators on MQ-1 drones in two months from start to operational use (Whittle, 2011) and Hellfire missiles in a six month timeframe that bracketed September 11, 2001 (Frisbee, 2004). Big Safari applies exceptions to traditional process in small programs, and it was a good fit for what was originally planned for MQ-1 Predator.

However, demand for Predator aircraft exploded beyond the original plan for thirteen systems. For each fiscal year from 2000 through 2006, the MQ-1 program received congressional plus-ups to its baseline budget request. For example, following September 2001, Congress increased MQ-1 Predator production funds 400 percent in 2002 and 2003 (Robotham, 2012). Big Safari simply abandoned the original acquisition plan, and no time was spent developing a new plan. The primary focus of the funds was to deliver aircraft and equipment, as opposed to studies and documentation. As a result, Predator requirements and acquisition planning and implementation were modified continuously. This was assisted by GA-ASI building Predator aircraft and equipment in advance or at risk. The risk was rewarded as demand ramped up following September 2001, see Figure 2. Still, the Air Force was not able to put all the provided funding on contract and it failed to meet DoD financial metrics. While this typically would result in reduced funding, funding was provided for the MQ-1 Predator despite of the program office’s inability to spend it.

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In time, the MQ-1 program outgrew the ability of Big Safari to manage it. Higher quantities drove the need for additional structure, and the Air Force created a separate program office to specifically manage the MQ-1 Predator. In July 2006, the AF activated the 658th Aeronautical Systems Squadron (AESS) to serve as the new Predator program office. The expectations were to “… use streamlined management tools to rapidly prototype, modify, and field Predators with increased combat capability, while at the same time, ensure core program activities…are normalized to meet the demands of large-fleet operations” (Grunwald, 2005). Although the 658th was successful in meeting increased operational needs for the warfighter, it came at the cost of incomplete application of procurement guidelines.

When Predator transitioned to a dedicated program office and started to apply standard procurement processes, a clear shortcoming was the lack of engagement with Predator contractors about the accompanying changes. Of the three MQ-1 Predator contractors, GA-ASI had the largest involvement in the program and the least experience working with the government. Few people at GA-ASI understood what was required of an ACAT II program let alone the definition of ACAT levels. Meanwhile, there was pressure on the program office to simply spend funding and deliver MQ-1 systems. As a result, application of standard government procurement processes was limited.

By 2009, shortfalls in following procurement guidelines became apparent, when Predator crossed the funding threshold to become an ACAT I program. As an ACAT I program, oversight was elevated from the Air Force to the Office of the Secretary of Defense (OSD). Increased oversight and reporting requirements for the program office highlighted missing program documentation. Only four of over forty required documents had been completed as part of the 1997 Milestone III decision by OSD, and, by 2006, only six documents were completed (Robotham, 2012). Between 2006 and 2010, the Predator program office completed another five documents and was working on drafts of another four documents. Still, this was only fifteen out of 56 documents required of an ACAT I program. In considering what documents to complete, the MQ-1 program office concentrated on areas that could benefit the program in the future. Documentation efforts focused on three areas: protection, requirements management, and sustainment. For example, in the protection area, understanding the system’s vulnerabilities became critical after a computer virus infected the air vehicle’s network (Reuters, 2011). On March 3, 2011, the Air Force accepted the last production MQ-1 Predator, thus ending the production program, and the conversion to standard defense procurement processes remains incomplete.

The Israeli Perspective

In this section of the paper, we review Israeli defense programs to enrich our comparison of procurement practices. We selected parallels to the U.S. programs and review the development of Israel’s first fighter jet, the Lavi, and the Scout UAV program. While the setting is different, we found the programs display a familiar contrast in practices and experience.

The Lavi

loc-6-laviThe Lavi (Hebrew: “Young Lion”) was a multi-role fighter, developed by the Israel Aircraft Industry (IAI). Its genesis can be traced to February 1980, when the Israeli government authorized the Israeli Air Force (IAF) to prepare technical specifications for the IAF’s future fighter. According to DeLoughry (1990), having its own fighter was particularly appealing to Israel for several reasons. Local production meant the creation of needed jobs, maintaining local aerospace capabilities, building high-technology offshoots and products for export, and lessening U.S. political influence over Israel. Additionally, the Lavi would be exclusive to Israel’s inventory unlike advanced U.S. aircraft that are found in other Middle Eastern countries.
Lessons from the Yom Kippur War (1973 Arab-Israeli war), when the Israeli Air Force (IAF) lost close to one-third of its frontline combat aircraft, motivated the planning of an aircraft specifically designed to attack ground targets (DeLoughry, 1990). The idea was to develop a small, lightweight fighter-bomber, suited to Israel’s operational requirements, to replace nearly-obsolete Douglas A-4 Skyhawks and IAI Kfirs (based on Dassault Mirage 5) at reasonable costs. According to a 1980 IAI feasibility study the Lavi was presented as much as 70 percent cheaper than buying F-16 aircraft (Singh, 1998); however, by 1981, it was estimated that a Lavi would cost 5% more than an F-16 (Haglund, 1989).

Lavi Fighter (Israeli Air Force, 2012)

The increased costs were compounded by additional changes. In 1982, the concept of the Lavi grew from the original close support mission to include air superiority (DeLoughry, 1990). The Israeli government authorized prototype construction for the updated Lavi with full-scale development starting in October of 1982. By 1987, requirements creep made the Lavi comparable to an F16, but at an estimated cost 57 percent more than an F-16 (Haglund, 1989). In the face of increasing costs, the number of aircraft planned to be procured was reduced from 500 to 450 to 300 (Haglund, 1989; Van Creveld, 1998). Later, the Lavi program (jointly funded by the U.S. and Israeli governments) was cancelled in 1987 following a protracted debate between U.S. and Israeli officials, as well as internally, in Israel.

The Scout5

The Scout was a reconnaissance UAV developed by Israel in the 1970s. Sanders (2002) compared the early development of Israeli UAVs to the development of computers in the U.S. with IAI colleagues Alvin Ellis and Yehuda Manor building a prototype in a garage. From losses in the Yom Kippur War, Alvin Ellis believed that drones equipped with television cameras would offer advantages over manned aircraft. The two partners couldn’t get funding from the IAI, so they turned to Tadiran, a private electronics conglomerate. While their UAV initially attracted little attention, the Israeli military eventually became interested, and Tadiran and IAI went on to compete for a few years over defense contracts from the Ministry of Defense (Sanders, 2002).6

Scout Drone (Israeli Air Force, 2012)

The first order from the Israeli Ministry of Defense arrived in September 1977, initiating concurrent development and production of Scout in parallel teams (Birnberg, 2003). Two years later, in 1979, the first Scout system was flown, and then delivered to the IAF in October 1980; however, it took roughly two more years to build a reliable system that could be remotely operated (Birnberg, 2003). The IAF used Scout in close collaboration with the IAI. For example, the IAI and not the military developed operating procedures and, when problems arose, the system was returned to the IAI for improvement.

The successful use of UAVs by Israel in the Bekaa Valley during the Lebanon war in 1982 brought Israeli drones to the attention of the U.S. military (Ryan, 1987; Ford, 1990). With the approval of the Secretary of the Navy, John Lehman, discreet negotiations began with the IAI and Tadiran, resulting in the purchase of a Mastiff system for the Navy. In 1984, the U.S. Navy initiated a “proof of concept” similar to what would later be formalized as an ACTD (Newcome, 2004).

loc-6-scoutMastiff was sent to the Marine’s 1st Remotely Piloted Vehicle (RPV) Platoon at Camp Lejeune, NC to gain experience, develop concepts for its use, and to train operators. In 1985, the 1st RPV Platoon deployed aboard the USS Tarawa (LHA-1) for initial at-sea trials, dubbed Operation Quick Go, to develop a concept of UAV support of amphibious operations. During a six month Pacific cruise, Mastiff was subjected to cold weather in Alaska, the jungle climate of the Philippines and Thailand, and the deserts of Australia (Newcome, 2004). The results were deemed a success and plans were made for a larger program.

In selecting a system for a larger program, the U.S. Navy held a “fly-off” in 1985 at China Lake, CA (Ford, 1990). The IAI engineers were asked to fly and land their UAV in an area no larger than 750 feet to enable takeoff and landing from U.S. Navy ships (Birnberg, 2003). Mazlat teamed up with AAI Corp, which won the “Fly-Off” with the Pioneer, a derivative of the IAI’s Scout (airframe design) with an electronics package jointly developed by the Mazlat and AAI (Ford, 1990).7 AAI became the production agent in the U.S. and the collaboration proved a success with the first three systems delivered in 1986 for use in gunfire spotting that later expanded to include aerial reconnaissance (Newcome, 2004; Ford, 1990).

The U.S. Marines successfully used Pioneer drones in fire spotting roles and for reconnaissance off battleships in Bosnia during 1994-1996, in Kosovo during 1999, and in the Gulf War (Newcome, 2004). For example, during the Gulf War Iraqi soldiers called the Pioneer drones “vultures” and learned when they heard the sound of a Pioneer drone that shells weighing 2,000 pounds would soon start landing around them from U.S. battleships firing off shore, and in one case Iraqi soldiers waved bed sheets and undershirts to surrender to a drone (Singer, 2009).

Discussion

A comparison of the U.S. F-22 Raptor and MQ-1 Predator programs and the Israeli Lavi and Scout programs suggests several similarities and differences. The combination of requirements creep and development issues with budget pressures resulted in a perfect storm for the F-22 and Lavi programs that reduced the number of F-22 by over 70 percent and outright cancellation of the Lavi program. By comparison, the UAV systems used commercial technology in programs that gave increased responsibility to largely commercial firms. For example, the U.S. government shared integration responsibility with GA-ASI and Tadrian/IAI helped to develop Scout operating procedures. A commonality across the programs is that competition had a minimal impact on how the programs evolved after award of the initial development contract, suggesting competition is more important early in a program.8 The comparison also highlights differences in requirements, oversight, and schedule.

Perhaps the most significant difference with the UAV programs is not starting with the traditional “pull” of a military requirement and the associated bureaucratic burden, but more from a “push” that demonstrated available technology that quickly found applications. Once proven, Predator and Scout had the effect of “priming the pump” for latent demand. GA-ASI and Tadrian were also largely “new entrants” to the defense industry with the result that each largely relied on commercial practices. Meanwhile, the F-22 and Lavi were built by established defense firms in response to an identified need typified by less collaboration. These differences enabled much faster progress on the Predator with only seven months between the initial contract and first flight versus 74 months for the F-22. One explanation for this difference in time is how the program structures enabled strategic agility.

The first aspect of strategic agility involves responding to emerging trends. Bound within a multi-year planning process, the F-22 was largely focused on anticipated versus current needs. Additional time on both the F-22 and Lavi likely contributed to requirements creep, as what was under development changed to address stakeholders. Meanwhile, the MQ-1 Predator delivered an initial aircraft within seven months that enabled experimentation with an established design in Balkans operations. Responsiveness was consistently demonstrated during the Predator program’s history with an operational deployment during its initial demonstration and incorporation of laser designators and Hellfire missiles within weeks and months respectively. This was likely facilitated by GA-ASI not being familiar with government procurement or taking a more commercial perspective. Responsiveness on the Predator program was also facilitated by Big Safari, focusing on 80 percent solutions. Meanwhile, the F-22 program was focused on complete solutions, or circumstances that can be criticized as gold plating. A similar experience led to the cancellation of the Israeli Lavi program.

The initial component of strategic agility also refers to the political environment. In reviewing the Lavi program’s fate, Sanders (1991) focused on three questions: 1) did Israel have the technical know-how and capabilities to build and maintain major defense industrial complexes, with cutting-edge technology, 2) did Israel have the physical, human, and financial resources such a project would require, and 3) did the U.S. have a valid and long-term interest in enabling this venture? In answering these questions, Sanders (1991) provides a mixed assessment. While Israeli engineers had managed to build two prototypes that flew, they had to rely a great deal on technology from the U.S.9 Further, while Israel had the physical and human capital to complete Lavi, it lacked the necessary financial resources with the U.S. again providing support. However, the more telling answer is the political environment. As the Lavi’s design became more capable, the U.S. was less willing to support a program that could compete with U.S. programs in international markets.10 The geo-political environment also impacted the F-22 Raptor and MQ-1 Predator programs as the first often viewed as a Cold War relic and the second met increased sensitivities about U.S. casualties and increased demand following 9/11 (Singer, 2009).

While Israeli engineers had managed to build two prototypes that flew, they had to rely a great deal on technology from the U.S.

The second aspect of strategic agility relates to nimble decision making from a deep understanding of an organization’s capabilities. For U.S. programs, both the F-22 and MQ-1 exhibited consistent change in funding and planned procurement quantities. However, changes to the MQ-1 Predator were largely synergistic or reinforced program success. Additionally, a focus on speed for the MQ-1 prioritized doing only what was important. Meanwhile, changes to the F-22 Raptor program largely resulted in additional oversight and fewer aircraft. There are likely multiple reasons for these differences; however, we focus on two.

First, decisions on the MQ-1 Predator were pushed to a lower level with it starting as an ACAT II program. This allowed local officials to make timely and informed decisions. With over ninety ACAT I programs to review (OSD, 2012) it is unlikely that OSD can achieve the same level of familiarity with a given program as those with day-to-day management and coordination of any decision simply drives additional time.

Second, related to oversight and accompanying coordination is the amount of documentation for each program. While program documentation helps to ensure steps are not missed, it largely comes at the expense of program execution. The combined effect is that program oversight and requirements grow exponentially, but the benefits display diminishing returns, see Figure 3. The figure is intended to be illustrative with different circumstances and programs shifting the lines or requiring a context specific balance. In other words, we do not pretend there is an optimum level of oversight for all programs.

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Though it grew into an ACAT I program, the MQ-1 was successful with less oversight. In the case of the F-22, the program experienced multiple challenges, and resolution of these challenges with increased oversight delayed the program’s schedule, increased costs, and reduced available funding. Perhaps the largest difference in oversight was in the level of documentation completed for the MQ-1 and F-22 programs. While the last aircraft were delivered roughly a year apart in (2011 for Predator and 2012 for Raptor), the MQ-1 had only 25 percent of required ACAT I documentation, and the F-22 program’s oversight and associated documentation exceeded ACAT I requirements. For example, Secretary of Defense Leon Panetta recently required the submission of plans to accelerate fielding of a backup oxygen system, and Congress is requiring a selected acquisition report on F-22 modernization (U.S. Senate, 2012). However, deviation from requirements is not unique to Predator with a 2007 DoD study finding 117 of 131 programs failed to meet procurement standards (Singer, 2009). The cost of oversight clearly exceeds its benefits when nearly 90 percent of programs are unable to meet requirements.

The third aspect of strategic agility involves rapid resource redeployment. A supportive geopolitical environment enabled GA-ASI to produce MQ-1 aircraft at risk and the government to have funding available to respond to emerging needs, such as laser designation and Hellfire integration. When resources were changed on the F-22 program, funding was largely cut and quantities decreased resulting in slower deliveries that encouraged further costly changes. A contributing factor likely involves the locus of integration responsibilities. Lockheed was the prime contractor and entity responsible for integration on the F-22, and this resulted in many systems on the F-22 becoming proprietary, serving as an additional constraint. Meanwhile, shared responsibility for integration on the MQ-1 enabled greater variation.11 For example, there are more versions of MQ-1 aircraft and ground control stations (i.e., dozens) than F-22 configurations (i.e., handful) though comparable numbers of aircraft were produced. The Predator experience is more consistent with Israeli policies that enable field modification of equipment that are resisted by U.S. oversight (Herman, 2011; Singer, 2009). While cost played a role with one F-22 costing several times more than a Predator (Singer, 2009), factors beyond cost impacted the success of these complex and technologically sophisticated programs.

Conclusion

America is at a unique moment in history where greater strategic agility is required to confront a less stable, multi-polar world than Cold War era procurement processes allow. The underlying structural problems are reminiscent of warnings by President Eisenhower in his farewell address to “guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex” (Beck, 1980: 703). The oversight of defense procurement has increased over time and contributed to additional stakeholders that increase program timelines. During the 1980s, 12 to 15 years were needed for a program to complete the defense procurement system (Gansler, 1986), and subsequent procurement reforms seem to have only increased the time required to field programs (Green, King & Rappaport, 2000). Meanwhile, over a decade is too long for defense procurement to field solutions for capability gaps, making now the time to simplify U.S. procurement (Lehmann, 2009; Robotham, 2012).

While Secretary of Defense Gates began to call for more rapid acquisition in 2009 (Shachtman, 2009), reforms remain incomplete. For example, the National Defense Authorization Act for Fiscal Year 2011 standardized rapid development and acquisition for all of the services, but these processes are built on top of the existing system. Instead, agile acquisition processes need to become the new standard. In a recent article, Herman (2011) suggests the Israeli perspective may be interesting point of reference, and he argues:

“The Israeli way of doing defense business is changing the shape of the military-industrial complex. Smaller, nimbler, and entrepreneurial, Israel’s defense industry offers a salutary contrast to the Pentagon’s way of doing things.”
(Herman, 2011: 15).

Following the end of the Cold War and cancellation of the Lavi program, Israel deregulated its defense industry and it provided two major benefits.

First, deregulation spread experienced engineers to other firms that served as a springboard for ideas (Herman, 2011). By comparison, by one estimate up to one-third of U.S. engineers are tied up in defense work (Pascall & Lamson, 1991) at a time when U.S. defense firms spend more on lawyers than R&D (Herman, 2011). For example, Sierra Nevada is suing the U.S. Air Force to reinstate a $354 million contract for light attack aircraft for use in Afghanistan after the initial contract award was set aside over concerns with documentation (Hegeman, 2012). After accounting for a lower protest limit, the number of defense protests to the GAO grew over seventeen percent between 2007 and 2008, and the number of protests upheld grew from sixteen percent in 2002 to over twenty-five percent in 2006 and 2007 (Darcy, 2009; Rosenberg, 2008). The number of protests upheld is likely directly correlated to the inability of roughly 90 percent of programs to meet procurement standards (Singer, 2009). A clear drawback of a separate defense industry specializing in doing business with the government is that major defense firms limit competition and a greater focus on politics than programs. Deregulating the U.S. defense industry will increase the number of firms available for defense work and increase competition.12 For example, the 2007 proposal for the first U.S. Army aircraft attracted 41 bids (Sokolow & Green, 1999).

Second, Israel (while spending more on defense as a percentage of GDP) has approximately dramatically less overhead with 300 people providing oversight to its defense programs compared to over 30,000 U.S. personnel spread across dozens of offices and organizations (Herman, 2011; Lehmann, 2009). This oversight results in innumerable changes that increase cost and often drives people to focus more on process than warfighter needs (Lehmann, 2009; Taibl, 2008). For example, oversight contributed to an average of 75 change orders a week on the U.S. Navy’s littoral combat ship (Lehmann, 2009) and changes increase program costs by forty-five percent on average (Gansler 1980). The first step in fixing this problem is to explicitly recognize the 5000 series as a guideline and not an all-encompassing checklist that drives 90 percent of programs not to be in compliance (Singer, 2009; Taibl, 2008). The primary advantage of less oversight and documentation is speed, and time is money. Again, the U.S. Army contract to the Wright Brothers is illustrative in that the contract was awarded in February 1908 and the first plane was delivered in August 1908 (Sokolow & Green, 1999).

Combined these benefits suggest U.S. oversight of defense programs is the primary limit to competition and this is reinforced by the Predator program’s success. Predator demonstrated operational and programmatic success without using the full extent of established defense oversight. It is also reasonable to conclude that the MQ-1 Predator would not have been successful if it was required to meet ACAT I requirements from the beginning. For example, Aquila, a drone program that was a precursor to Predator experienced a fate similar to the F-22 and Lavi. Aquila began in 1979 and by 1987 it was cancelled after spending over $1 billion and only building a few prototypes as oversight and additional requirements delayed the program and drove up costs (Singer, 2009). In other words, MQ-1 Predator succeeded largely from a favorable geopolitical environment that contributed to it being removed from traditional oversight.

While sources of its success can be argued, Predator did not result from competition and it displayed a partnership with industry in developing current technology. This enables shorter timelines by matching current needs and capabilities, as well as experimentation to increase system effectiveness. Reliance on industry to lead development and production in a decentralized process has roots in how America became the arsenal of democracy in World War II (Herman, 2012) and comparisons to today in NASA’s outsourcing of space launch to SpaceX (Pasztor, 2012). We conclude with the observation that the benefits of defense procurement oversight may only be recaptured, if it is made simpler. Reducing oversight would also increase competition by reducing the advantage of defense contractors in dealing with the government to make it open to more firms. This would enable a competition of ideas versus a focus on getting more firms to compete for the same contract.13

Appendix: Methodology

The research design involves a multiple case study design matching patterns between historical events and theoretical concepts (Campbell, 1975; Yin, 1994). Case studies of the F-22 Raptor and MQ-1 Predator are developed from primary and secondary sources. Two of the authors took part in the MQ-1 program and one author worked on the F-22 program, enabling access to personal experience to describe procurement practices. Additional information on U.S. programs was collected from secondary sources. Case studies of the Israeli Lavi and Scout programs were only collected from secondary sources. An analysis of the developed cases is then used to assess implications for procurement practices.


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Endnotes

1 For example, oversight of U.S. defense programs varies by acquisition category (ACAT I through III) that provide greater oversight to higher dollar value ACAT I programs (DoDI 5000.2, 2008).

2 A brief description of the methodology is provided in an appendix.

3 Although Lockheed became Lockheed Martin following its 1995 merger with Martin Marietta, we refer to the firm simply as Lockheed for consistency.

4 179 production F-22 were produced, but the total program was 187 aircraft, including six Production Representative Test Vehicles and two development aircraft.

5  Once the Scout prototype was flown, it was renamed Mastiff.

6 In 1984, Tadiran and the IAI combined to form Mazlat (the Israeli acronym for RPV), which is known today as Malat, the UAV division of IAI (Newcome, 2004).

7 Foreign manufacturers normally team with U.S. firms for DoD procurement (Sanders, 2002).

8 This likely only holds true when an open architecture is used.

9 Most notably the PW1120 Pratt & Whitney engine and graphite-epoxy composite components for the wings and tail were provided by Grumman Aerospace Corporation.

10 Foreign Military Sales (FMS) help lower costs of U.S. programs and extend production (King & Nowack, 2003).

11 The majority of the variation was done by GA-ASI and government contract language was to deliver the most current configuration.

12 Deregulation also has the potential to make defense resources more productive.

13 By comparison, competition for the same contract provides less benefit and contributed to problems on AMRAAM development and production between Hughes and Raytheon.


Author Biographies

Nir N. Brueller holds a Ph.D. in Management (Strategy) from Tel Aviv University, an MBA with Distinction from INSEAD, and both a M.Sc. and a B.Sc. (Cum Laude) in Electrical Engineering from the Technion – Israel Institute of Technology. Nir’s research interests revolve around corporate strategy, with a special focus on high-tech industries, mergers and acquisitions, and technology entrepreneurship and strategy. Before joining academia, Nir held several management positions in industry.

David R. King earned a Ph.D. in strategy and entrepreneurship from Indiana University’s Kelley School of Business. He is a recognized expert on merger and acquisition performance, technology innovation and defense procurement with articles appearing in leading journals. Dave retired from the U.S. Air Force where he served as a procurement official on multiple defense programs, including the AC-130, F-15, F-117, F-22 and MQ-1 aircraft.

Rojan Robotham, Major, USAF earned a MMAS from Army Command and Staff College and a B.S. in physics from Georgetown University. Rojan is currently serving in the United States Air Force and works in the Secretary of Air Force acquisition office. Previously, she held various program management roles for the MQ-1 and MQ-9 unmanned systems. Her experience concentrates in management of ISR acquisition programs.

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