When complexity breeds remorse

In 2007, nearly halfway through a $24 billion contract to build new boats, Coast Guard officials became unhappy with the lead systems integrator’s work.

They rejected the first eight patrol boats from Integrated Coast Guard Systems, a partnership of Lockheed Martin and Northrop Grumman, because they found the boats structurally unsound.

Six years earlier, the Coast Guard had handed control of the Integrated Deepwater System contract to the companies’ partnership on the assumption that it had the expertise and resources to deliver boats with complex new electronic command-and-control systems and do it in the project’s specifications and budget. By doing so, the Coast Guard was essentially acknowledging its own inability to manage such a complex procurement.

However, once the boats started coming off the assembly line, concerns voiced by whistle-blowers and Coast Guard officials revealed serious flaws. As a result, the Coast Guard took over as lead systems integrator for Deepwater.

Now experts question whether that approach has been any more successful.

Agencies often put outside contractors in charge of programs as a way to share responsibility for managing complex procurements. But as the Coast Guard’s experience illustrates, agencies can quickly lose control of those programs.

Government officials continue to look for the best way to handle multibillion- dollar acquisitions, and one idea now gaining favor is to consider complex programs as a separate category of procurement. The Federal Acquisition Regulation treats all acquisitions the same way, although the Defense Department has developed additional rules for its most advanced weapons systems.

However, a growing number of experts suggest that more sophisticated approaches are needed as large acquisitions continue to grow in size and cost.

The IBM Center for the Business of Government recently published a report titled “The Challenge of Contracting for Large Complex Projects: A Case Study of the Coast Guard’s Deepwater Program.” In the report’s introduction, Albert Morales, managing partner at the IBM center, and David Abel, vice president of IBM Global Business Services, wrote, “When the government buys simple products, like paper clips, they can turn to well-established acquisition strategies and practices and apply them to richly competitive markets. When government agencies buy complex products, like weapon systems, conventional acquisition approaches are often insufficient and markets are more challenging.”

Although the idea of treating complex procurements differently is still evolving in acquisition circles, it is a potentially controversial approach because it could lead to separate sets of regulations.

The Obama administration will face those challenges as it assumes responsibility for big-ticket items already under contract, such as the Coast Guard’s Deepwater ship and boat replacement program, Customs and Border Protection’s $8 billion SBInet electronic fence along the border with Mexico, and the Army’s $100 billion-plus Future Combat Systems.

In the same category, some experts list the $825 billion economic stimulus package, the $700 billion Troubled Assets Relief Program and President Barack Obama’s proposed $50 billion investment in health information technology.

Complex acquisitions might require new rules and regulations and a specialized understanding of acquisition, said Jon Desenberg, senior policy director at the Performance Institute, a nonpartisan think tank in Arlington, Va. Desenberg said Obama ought to re-examine complex IT programs and systems to determine if agencies can realistically accomplish them. Buying complex software development programs in which the goal might be clear but the technology nonexistent make it especially difficult for agencies to achieve their goals.

“A lot of these complex programs are a dream on paper and do not exist in reality,” Desenberg said.

All complex procurements demand specialized talents, structures and approaches.

However, those skills are difficult to come by, according to the IBM center’s study.

Focusing too much on complexity — and creating additional rules for it — could be counterproductive, said Rand Allen, chairman of the government contracts practice at Wiley Rein, a Washington law firm. A procurement with overly complex requirements is more susceptible to protests by losing bidders, which delay the entire program, he added.

Nonetheless, some experts say it might be helpful to consider complex procurements as a breed apart. In the IBM center’s report, such acquisitions are defined as those with qualities and requirements that are difficult to establish at the outset and difficult to verify once completed.

Instead of adopting a new set of rules, in recent years, civilian agencies have tested new approaches to handling such procurements, including hiring a lead systems integrator, as the Coast Guard originally did for Deepwater.

They have also assembled integrated product teams to coordinate requirements and acquisitions, and they have used earned value management tools and so-called spiral development. Under that model, officials take into account new software versions and other advances in technology that will likely occur during the course of the program.

But those attempts have worked imperfectly.

In 2006, Customs and Border Protection hired Boeing as lead systems integrator and Booz Allen Hamilton to assist with oversight of SBInet, a virtual border fence composed of cameras, radars and communications equipment strung on towers.

The project faltered in June 2007 when an initial prototype system was to be less robust than expected. After additional work, the agency accepted the prototype in February 2008, but the program ground to a halt that summer because of delays in getting the necessary land permits. Lab testing continues, with construction of permanent towers scheduled to begin in March.

Complex procurements have faced special problems since at least the 1990s, when agencies realized they lacked the in-house expertise to manage purchases of advanced weapons systems, said Stan Soloway, president and chief executive officer of the Professional Services Council, a group that represents services contractors.

To address that shortcoming, many agencies hired lead systems integrators.

But that solution sometimes gives too much leeway to contractors and leaves agencies with insufficient control over the programs, Soloway said.

If an agency lacks expertise in setting requirements and ensuring their fulfillment, it would be wise to hire a second contractor to help oversee the program’s structure and the lead systems integrator’s performance, Soloway said.

“The question is: Was the program properly architected and engineered from the beginning?” Soloway said.

Agencies and outside experts still don’t know the ideal structure for complex programs.

“There is no cookbook for complex procurement,” said Trevor Brown, an associate professor of public affairs at Ohio State University and one of the three authors of the IBM center’s report.

The authors recommend developing more specialized skills among federal acquisition workers. “At this stage, the knowledge base does not exist yet,” they wrote.

Government officials are recognizing that need and are emphasizing training and relevant expertise for acquisition employees. To become experts, they must grasp a wide range of issues, from overarching areas down to specific details.

They need to understand market dynamics, how companies behave and the legal aspects of contracting, according to the IBM center report.

When entering into contracts, the authors wrote, procurement officials must understand the risks and be able to negotiate an arrangement suited to the work. After the contract is awarded, they must manage and oversee the work.

But despite the great need for such expertise, the government currently has no career path that encourages talented employees to develop those skills, Soloway said.

“In the civilian sector, you do not have program management as an aspirational career field, yet government is organized by program,” Soloway said.

“We need to recognize program management as a career path and a capability.” John Palguta, vice president of the Partnership for Public Service, agreed that the complexity of acquisitions has been growing, but the federal acquisition workforce has not kept pace.

“The demand for acquisition workers has continued to expand in number and complexity, and we need to give time and attention to it,” he said.