| By John M. Donnelly John
M. Donnelly is a reporter for Defense Week.
During the Cold War, the roles of
contractors and government officials were well defined. Today, acquisition reform has
caused the old distinctions to blur. In some cases, the earlier roles have even reversed.
Two significant new examples of these
changes help tell the story.
First, instead of the government hiring
the defense contractor, contractors are now, for the first time, occasionally hiring the
government under new "commercial service agreements."
The second major change affects the
process of testing major weapons systems. In the old days, the contractor tested its
system, then the government tested the system. Now, starting with select programs, public
and private testers are working on the same "integrated test teams."
These are probably the two biggest
changes acquisition reform has wrought at the Naval Air Systems Command, or NAVAIR, Navy
officials say. Specifically affected are Naval Air Warfare Center (NAWC) Aircraft Division
facilities in Lakehurst, N.J., Patuxent River, Md., and Orlando, Fla. Also affected are
NAWC Weapons Division facilities at China Lake and Point Mugu in California, and Naval
Aviation Depots in Cherry Point, N.C., Jacksonville, Fla., and North Island, Calif.
The new phenomenon of contractors hiring
the Navy resulted from recent-year reductions in the defense budget. With fewer programs
now making demands on the huge complex of NAVAIR ranges, laboratories, and testing
facilities developed during the Cold War, the Navy needs to use them both more
productively and more efficiently.
"We are going to have to find other
customers or we are going to have to close these facilities down," says Robert Young,
director for lead management in the NAVAIR business development office.
A Win-Win Situation
But the service is finding other
customers, making a virtue of necessity, Young says. NAVAIR, in particular, is making its
facilities available for hire to private companies in certain circumstances. As a result,
NAVAIR gets to use the facility and also receives significant income from these deals--$10
million so far, says Young.
Industry also benefits from the change
because it can take advantage, for the first time, of the U.S. military's unparalleled
assets and capabilities, which companies probably could not afford to develop on their
own.
This major change, which started just a
few years ago, is the result of new laws written as a response to declining budgets and
closing facilities. In just that short time, however, the new way of doing business
has become the fastest-growing way of doing business at NAVAIR, says Young.
The new laws cleared the way for the
government to create special contractual arrangements called "commercial service
agreements" under which either a prime contractor hires the Navy as a subcontractor
or the company teams with the Navy before any contract has been awarded. The company hires
out not just the facility, but also the labor required.
These agreements come with plenty of
strings attached. But they enable a fusion of the public and private sectors that,
although it was not specifically barred before, was never directly allowed, either--so it
was never done, Young says.
The arrangements are so new, in fact,
that Young was not at liberty, in all but a few cases, to name specific contractors,
because the deals are not final.
The new laws empower NAVAIR to provide
its aircraft and facilities for either testing and evaluation of requirements and
specifications or for research and development of new capabilities and technologies.
Among the facilities most in demand are
the test ranges, hangars shielded for electromagnetic testing, and various sites where
equipment can be "shaked, baked, rattled, and rolled"--in other words,
"ruggedized," as they say in RDT&E (research, development, test, and
evaluation) jargon.
"Say Boeing develops a whole new
aircraft," said Young, discussing a hypothetical illustration, "and wants to
sell it to a foreign country, possibly for military use. Before that country might want to
buy that aircraft from Boeing, the country might want some assurances that the aircraft
would meet a DOD [Department of Defense]-type mission.
"In the past, Boeing would have to
do that test themselves," he said. "Boeing doesn't own any open ranges like we
do. They would have to do a lot of laboratory testing; they might have flown the aircraft
to see if it would fly, but they may not necessarily be able to create the dynamic
environment we have. They might test one sensor at a time using their very limited
resources."
By contrast, he said, the Navy "has
ranges throughout the United States that are fully instrumented, and we are able to create
very dynamic electronic and combat environments. In the past, Boeing couldn't use them
[the ranges] if it was going to be a private Boeing sale."
Navy and industry officials also provided
some real examples (minus the names of the companies and foreign countries involved). In
one case, a company that is competing to win a contract (from another company) to build an
aircraft made entirely of composite materials is making use of one of NAVAIR's structures
laboratories. The company's only other option would be a laboratory owned by one of its
competitors--but the design in question is proprietary, and the possibility of compromise
was inevitably very high.
The Navy, however, can protect
proprietary information as if it were a state secret, Young said.
In another real example, a large nation
(not the United States) wants to buy an advanced early-warning aircraft along the lines of
the Navy's E-2C Hawkeye. Three teams comprising some of America's top aircraft developers
are under contract to develop concepts for this 21st-century airplane. Each team is
proposing a different airframe design.
The common link: each contractor is
teaming with the Navy to help develop that team's respective concept and test it out. One
company is looking for third-party certification of its product; another wants to carry
out ground and flight testing of its product; the third team seeks a mixed bag of testing
and evaluation support.
The Navy maintains tight walls between
the three efforts to protect information proprietary to each team.
In addition to these kinds of deals, a
contractor also could hire the Navy to demonstrate compliance with an internal company
requirement, such as monitoring the quality of a product, Young said. There are, though,
several limitations to the new arrangements, he also said. For one thing, the government
cannot, by law, extend credit to private industry. Young said that law drives much of what
can and cannot be done under commercial service agreements. A specific example: The United
States (or any of the armed services) cannot be "hired" under a fixed-price
contract, because, if the contract underestimates the amount of money required to execute
the deal, the United States would have to make up the difference. For the same reason, the
customer hiring the Navy must cover all government costs involved and must pay the
government in advance.
This marks a change for prime contractors
who are accustomed to dealing with private subcontractors who assume the risk, agreeing
both to provide goods and services for fixed prices and to be paid on delivery, not up
front.
Another critical legal factor to
consider, Young added, is that the government cannot compete with private companies for
business. In other words, the Navy cannot try to win out over a company that says it can
provide the same testing or development assets that the government can.
According to Young, the Navy is not
competing with the private sector if any of the following three conditions are met: (1)
the Navy is providing a unique capability; (2) only the Navy can provide the goods or
services specified on the schedule established by the contractor; or (3) the contractor
needs proprietary and/or physical security that only the Navy can provide.
Young says Pentagon acquisition chief
Jacques S. Gansler, under secretary of Defense for acquisition and technology, is
extremely concerned about the possibility that contractors might perceive that the
military is competing directly with them.
In fact, the Pentagon is inviting
contractors who believe that the government has been, is, or could be competing against
them to provide the "how, when, and where" specifics. DOD plans to issue a
notice in the Commerce Business Daily, officials said, requesting such information.
The answers received will be fed into a database that must be consulted before a field
activity of any of the armed services is hired by a company. The purpose of creating and
maintaining the database, the DOD officials said, is to ensure that companies can protect
themselves against the possibility that the United States might compete against them.
All these rules make it difficult for
Young. He concedes that his job is, in effect, both to develop new business opportunities
for NAVAIR and also to ensure that NAVAIR is the last choice.
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