5/31/2016
Sweeping Defense Reforms Loom as NDAA Moves to Senate
By Sandra I. Erwin
http://www.nationaldefensemagazine.org/blog/Lists/Posts/Post.aspx?ID=2205The Senate next week will debate a defense policy bill that would be historic in its reach, and could test Sen. John McCain’s ability to push through legislation that touches on virtually every aspect of the defense business.
Reforming the Pentagon has been a longtime goal of Senate Armed Services Committee Chairman McCain, R-Ariz., and the committee’s version of the 2017 National Defense Authorization Act does that in ways that few people in Washington yet comprehend.
“It’s a massive bill. I don’t think people have fully absorbed all the reforms in it,” said Roger Zakheim, government affairs attorney at Covington, and a former general counsel and deputy staff director of the House Armed Services Committee.
McCain likely will not get everything he wants when the bill moves to the Senate floor the week of June 6. SASC leaders may have to compromise on some of the most controversial provisions, such as those that roll back military benefits and disband the office of the undersecretary of defense for acquisition. Broadly speaking, though, the reforms in the 2017 NDAA will be consequential for years to come, Zakheim said. “I think this is very significant stuff that’s in the bill, from redefining the role of the chairman of the joint chiefs of staff, to military health care and defense procurement, McCain is leaving a mark on every one of these things in a dramatic fashion.”
Some Capitol Hill insiders predict a few of the most far reaching reforms will be gutted on the Senate floor, and point out that the SASC bill already has diluted some of the original McCain proposals.
“It’s less than I expected to see,” said Justin Johnson, senior budget policy analyst at the Heritage Foundation’s Center for National Defense. “McCain wanted to do more on personnel reforms,” he said. An amendment filed by Sen. James Inhofe, R-Okla., and supported by several senators slow down or remove pieces of McCain-endorsed commissary privatization and health care reforms, said Johnson.
The Pentagon has reacted fiercely to the proposed breakup of the office of the undersecretary of defense for acquisition, technology and logistics. Johnson said it’s unclear whether the measure will survive the NDAA conference.
Secretary of Defense Ashton Carter said he would recommend the president veto the bill over what he considers an “unproductive” reorganization of his office. The SASC language would eliminate the position and reallocate its responsibilities to a new undersecretary for research and engineering and an undersecretary of management and support — a position created by the fiscal year 2015 defense authorization act that the Pentagon will need to have in place by February 2017.
“Other than DoD, I don’t think anyone will aggressively fight it,” said Johnson. This would be a “significant change,” he said, and the provision does raise fair questions about whether reorganizing the Pentagon necessarily produces better results or fixes problems in defense procurements.
Regardless of the outcome of the AT&L provision, the NDAA is poised to shake up the Pentagon’s acquisition processes and methods in an unprecedented fashion, Johnson said. “I don’t recall an NDAA with this many acquisition reform provisions,” he said.
The bulk of the reforms related to the procurement process and contracting will not encounter much opposition, he said. Barring a few items that may be up for negotiation, most of the acquisition-focused Title 8 in the bill — so large that is goes from section 801 to 899, with some sections containing multiple subsets — will face few roadblocks.
McCain will be more successful at pushing through the acquisition measures than he will be at passing personnel and Pentagon command structure reforms that fall under the umbrella of Goldwater-Nichols, said Johnson. The senator last year convened a series of hearings that aimed to persuade lawmakers across the spectrum that the 1986 Goldwater-Nichols Act is ripe for change. The law at the time was ground breaking in the way it organized the Defense Department and the military command hierarchy but McCain has argued that the law over time has helped to create a byzantine system that impedes the military from reacting to geopolitical changes and emerging threats.
“I think Senator McCain wants to do more than other members might want to do,” Johnson said. “He’s a every effective senator but there are still limits to what he can do without larger support. There’s a bit more hesitation from other senators that seem to be holding him back.”
“McCain has pulled out all the stops, going much bigger than the HASC,” he said. “But I think what's interesting is that what you see from the markup is very different” from what he initially sought in areas like changing the military promotion and healthcare systems. Some amendments may call for further studies before reforms are implemented, said Johnson, which may not neuter this whole effort but certainly slows it down.
Zakheim believes it is too early to write off Goldwater-Nichols reforms. McCain may have to walk back some items, he said, but the reality is that when a bill has been adopted by a committee, it carries a lot of weight. Major changes “would be unusual, especially on provisions the chairman cares deeply about,” said Zakheim. “Even if he dialed back some reforms, it’s hard to argue against the notion that Senator McCain is flexing a lot of muscle and changing DoD dramatically, from programs to policies and spending.”
Every NDAA hits the Pentagon with new policies but this one seems exceptional, said Zakheim. The exhaustive procurement package in the NDAA is extraordinary, he said. “There is a lot there, it could take DoD years to absorb.”
Some language, such as penalizing the Pentagon for using cost-plus contracts — which reimburse contractors for the cost of the work plus fees, as opposed to a fixed-price agreement — marks a reversal from legislation that Congress passed in 2009, Zakheim said. “He is walking away from key elements of the Weapon Systems Acquisition Reform Act” that calls for the Defense Department to use cost-plus contracts but also incentivize contractors to cut cost and do independent cost estimates. “This is a big deal,” Zakheim said.
The bill would require the Pentagon to pay a penalty for the use of cost-type contracts from fiscal 2018 through 2021. The penalty would equal 2 percent of the funds obligated for procurement contracts or 1 percent of funds provided for research, development, testing and engineering contracts. The bill would also direct DoD to use fixed-price contracts, including fixed-price incentive fee contracts.
The SASC bill aligns DoD organizations to encourage collaboration and teamwork. It elevates the Pentagon’s chief information officer to an assistant secretary, with the primary responsibility of overseeing cyber and space policy. The bill would reduce the number of general and flag officers by 25 percent and reduce the number of four-star officers to 27 from 41. “Over the past 30 years, the end-strength of the joint force has decreased 38 percent, but the ratio of four-star officers to the overall force has increased by 65 percent,’’ the committee wrote.
The bill would mandate that DoD have 25 percent fewer senior executive service members by 2019 than it had in 2015. It would also cap at the cost of fiscal 2016 contracts the total amount DoD could spend in fiscal year 2017 and 2018 on contractors performing staff functions.
The proposal reduces the National Security Council staff from 400 to 150 and does away with the Pentagon’s Quadrennial Defense Review, which would be replaced by an annual classified national defense strategy to be provided to Congress each January.
A new position of assistant secretary of defense for acquisition policy and oversight would set broad acquisition and industrial base policy and oversee the development of weapons. That post would report to the new under secretary of defense for research and engineering. The undersecretary of management and support would focus on running agencies that perform critical business operations. Four other assistant secretaries and three deputy assistant secretaries focused on acquisition issues within AT&L would also be eliminated.
The procurement reforms include language that would require the Pentagon to seek commercial technologies and adopt commercial-like contracting practices to speed up equipment modernization.
Bloomberg Government Analyst Cameron Leuthy highlighted SASC provisions that could be the most consequential to the private sector. One is the Tricare measure that would require the Defense Department to recompete U.S.-based medical support contracts by Jan. 1, 2018. This provision would “potentially start a gold rush,” Leuthy wrote.
Another item of significance to contractors is one that requires a Defense Department review of whether to allow small-business contractors to remain temporarily eligible for small-business set-aside contracts even if they outgrow size limits because of growing commercial sales. A small business is penalized if it grows its commercial business by losing small business contracting benefits, the SASC report said, and this fact serves as a disincentive to expanding into the commercial market.” This commercial growth exemption, Leuthy noted, would make it easier for DoD to access the innovation coming from small businesses. “By subtly shifting the definition of ‘small,’ the change starts to lay the groundwork for set-asides or other changes to help mid-tier vendors in a future NDAA.”
