Taking on Military Contract Reform

Coast Guard programs are overseen by LSIs. (Flickr: crosstrippin)

Budget cuts in the 1990s forced the Pentagon’s skilled contracting workforce to shrink by more than half. When defense budgets doubled in the wake of the Sept. 11 attacks, this workforce was overwhelmed. So the Pentagon handed the responsibility for overseeing lucrative weapons programs to industry teams called “Lead Systems Integrators,” or LSI – essentially allowing defense contractors to award government contracts to themselves.

One weapons expert says LSIs are like putting “a very juicy steak in front of a very hungry dog — and expecting the steak to still be there the next day.”

It took five years of waste and abuse for Congress to even begin trying to solve the problem. But efforts at reform have been thwarted by semantics, and by the difficulty in hiring and retaining government contracting experts.

In October 2006, for example, the Senate armed services committee tried to come up with new rules restricting systems integrators. But first, the committee had to figure out which defense deals qualified as LSIs. So it sent a query to the Pentagon’s chief weapons buyer, Kenneth Krieg, who wrote back: “Only one active contract actually used the term ‘lead system integrator.’” He was referring to Boeing’s and SAIC’s $160-billion “Future Combat Systems” family of robots and vehicles.

A year later, the Pentagon panel all but admitted that the earlier definition was way too strict. In reality, the panel reported, an LSI was any arrangement that “allows one or more contractors to define a weapon system’s architecture — and then manage both the acquisition and the integration.”

By that standard, there were around a dozen major Lead Systems Integrator projects, worth a combined $300 billion. Today more than 10 percent of the military’s weapons investment is entirely under the control of private companies. LSIs now represent the single biggest programs for the Coast Guard (the $25-billion Deepwater shipbuilding scheme) and the Army (Future Combat Systems).

The Air Force, meanwhile, is spending $20 billion on a delayed communications satellite managed by Booz-Allen-Hamilton. The Missile Defense Agency pays Boeing billions to handle a range of complex missile and radar programs — many of which have consistently failed tests. The Dept. of Homeland Security is paying Boeing up to $2 billion for a camera-equipped border fence in California that recently failed tests. In fact, most integrator-run programs have suffered major delays and large cost over-runs.

Despite this, government outrage was, for a long time, absent. Even when present, the indignation has been mostly toothless.

In 2005, Congress slightly tightened up cost reporting on Lead Systems Integrators; and the next year there was the new attempt at rules that was thwarted by Krieg’s letter. Several times, the Government Accountability Office, the investigative arm of Congress, has questioned the LSI concept — most recently in June 2007, when it warned that Boeing’s management of Future Combat Systems “posed significant risks.”

Still, the reliance on integrators continues, with results varying between somewhat acceptable and totally disastrous.

Thanks to former a Lockheed employee, Michael DeKort [[LINK TO PART I??]], and other whistleblowers, Deepwater’s massive failings were too obvious to deny or paper over. In April of last year Coast Guard Commandant Thad Allen promised to begin phasing out the integration deal. “We’ve relied too much on contractors to do the work of government,” Allen said.

That was little comfort to DeKort, who was fired for pointing out the LSI’s problems.

In any case, with so many ships and airplanes already in production, and acquisitions staffs gutted, it was nearly impossible for the Coast Guard to untangle itself from Lockheed’s and Northrop’s management. More than a year later, flawed equipment is still rolling out of the factories and shipyards, including a $650-million patrol ship whose communications gear never passed a required Navy inspection.

That’s one of the problems with Lead Systems Integrator deals: it was a shortage of government workers that made them necessary in the first place. Railing against LSIs is meaningless until you hire a bigger acquisitions workforce – and that’s easier said than done.

It takes years and tens of thousands of dollars to train up a good contract manager. The average acquisitions worker is now nearly 50 years old, up from 40 years old in the 1970s. And the existing workforce is set to dramatically shrink, despite a renewed recruiting push, since experienced employees will retire faster than new ones can be hired and trained, according to the January Pentagon panel. “The DoD acquisition workforce must be strengthened,” the Defense Science Board reported in July.

Nonetheless, this year Congress passed legislation to ban LSIs beginning in October 2010. Whether the ban will work is an open question. As the Senate’s 2006 exchange with weapons-buyer Krieg proved, there’s always some wiggle room within the definition of “Lead Systems Integrator.” If a contractor can make a good argument why the term shouldn’t apply to them, then the ban probably won’t either — and it’ll be business as usual.

Some contractors insist that the problems in the LSI concept are a thing of the past.

“The major issues that have been raised with respect to the Deepwater LSI structure are the lack of government visibility and oversight,” said Regen Wilson, a SAIC spokesman. He says the Future Combat Systems integrator setup stacks the industry teams with soldiers and Army civilians, so that no decision gets made without a government employee in the know.

“Congressional scrutiny … is not something we fear – it’s something we welcome,” said Ralph Shrader, CEO of integrator Booz-Allen-Hamilton.

“You’ve got to have government engineers at the ground level,” one Future Combat Systems agreed. “It’s a constant reality check.”

But even adding some government workers to industry teams represents, at best, a partial solution to the problem. Total and sole government oversight was the way things were done before the dawn of the Lead Systems Integrator: the best anyone anticipates now is somewhat improved oversight — within a framework of greatly increased corporate power over government spending.

It’s telling that in 2006, at the height of Deepwater’s bad press, Dep. Dir. of Homeland Security Michael Jackson, a former Lockheed executive, stood up in front of hundreds of contractors and reporters at a trade show and practically begged for a bigger corporate role in the contracting for the “smart” California border fence, code-named “SBInet.” “We’re asking you to come back and tell us how to do our business,” Jackson said, “We’re asking you. We’re inviting you to tell us how to run our organization.”

The Lead System Integrator concept “has muddled responsibility,” said Nick Schwellenbach, an analyst at Project On Government Oversight, non-profit watchdog group. That muddled responsibility has resulted in wasted money, ruined careers, like DeKort’s, and — perhaps most gravely — huge delays in delivering equipment that the U.S. armed services need to do their jobs.

There’s no easy way out. Future LSIs might sneak in under slightly different names and clever PR — while LSI deals launched years ago will bear bad fruit for years to come.

Indeed, in April, Jackson’s border fence, built by Boeing, was revealed to be a technical disaster “because of its reliance on contracting practices that have led to severe cost and schedule overruns,” according to a House testimony by Laura Peterson, an analyst from the non-profit Taxpayers for Common Sense. Her explanation? “Two-thirds of the individuals that designed the SBInet acquisition plan were contractors.”

David Axe is the author of “Army 101: Inside ROTC in a Time of War.” He blogs at www.warisboring.com.