A recent analysis piece at Law360 carried the headline, “New Defense Chief Faces Tough To-Do List.” The piece starts out: “With speculation rising over who will succeed Chuck Hagel as the next defense secretary, experts say the ultimate nominee must know the Pentagon inside and out, as well as be a skillful political operator, to tackle the threats posed by both sequestration and the terrorist group the Islamic State.” And that’s all we can see because the rest of the analysis is hidden behind an expensive paywall.

The rest of the analysis may address other challenges faced by the new Secretary of Defense, or maybe it goes into more detail regarding the initial list of challenges. We don’t know because the rest of the analysis is hidden. But we think the incoming SECDEF has other challenges that lie between the two edges of extremism defined by the article (Congress and ISIS). We would like to assert that, at a minimum, the spectrum of challenges needs to be defined by a triangle instead of a line. The triangle would be defined by Congress, parastatial terrorism … and the defense industrial base. We believe the incoming SECDEF needs to be worrying about how to repair the damage caused by nearly a decade of the adversarial relationship between the Pentagon and its contractors.

We were reminded of this third dimension of challenge when we read Sanda Erwin’s recent article in the National Defense Magazine – the official publication of the National Defense Industrial Association (NDIA). Her article, entitled, “Despite Contracting Reforms, Pentagon Seen as Unfriendly to Business.” We would have called it, “BECAUSE OF Contracting Reforms, Pentagon Seen as Unfriendly to Business,” but maybe that’s just us. Regardless of the best choice for title, we agree with Ms. Erwin that the Pentagon is perceived as being unfriendly to business. We think that’s one of the incoming SECDEF’s biggest challenges, right up there with Congressional extremism and the threat of parastatial terrorism.

We’ve written about the adversarial nature of the relationship between the Pentagon and its industrial base before. Recently we explored a RAND study that listed reasons why non-traditional defense contractors are reluctant to do business with the DOD. In another article, we discussed another Erwin article, and explored why the Pentagon desperately needed those non-traditional defense contractors to do business with it. In yet another article we wrote: “The marriage between DOD and its contractors is, seemingly, headed for a divorce. And like every divorce we’ve ever heard about, at the end of the day, the only winners are going to be the lawyers.”

So this concern about the Pentagon and its contractors is nothing new. What is new is the growing recognition that it’s a problem that needs to be solved. And apparently, only the SECDEF can solve it.

Ms. Erwin wrote—

Pentagon officials have been emphatic about ‘lowering the barriers’ to potential vendors -- especially those on the cutting edge of technology -- in order to spur competition in a market dominated by big conglomerates. But the private sector is skeptical. Industry executives say they appreciate the Pentagon's initiatives but so far see them as empty rhetoric. … executives contend that Kendall's initiative is not enough to counter a deeply entrenched bureaucratic resistance to doing business differently. They argue that Pentagon buyers are rewarded for squeezing profits out of contractors and make unreasonable demands for companies' intellectual property. Unless conditions change, executives say, the Pentagon will continue to have trouble wooing high-tech vendors that could far more easily sell their products in mainstream commercial markets.

Ms. Erwin related a “lively” exchange between the Hon. Frank Kendall (USD, AT&L) and Dov Zakhiem (former Pentagon Controller), wherein Mr. Zakheim “accused the Defense Department of being antagonistic toward industry profits.” Mr. Kendall disagreed with the accusation, as expected. Mr. Kendall is, of course, the current cheerleader for the series of reforms and initiatives called “Better Buying Power,” which has noble aims and (we think) mixed results. As we have asserted before, the set of initiatives is based on the fundamental precept that the only way for the Pentagon to live within its diminishing budget is to squeeze more costs out of the industrial base. While doing more with less is obviously one goal that needs to be accomplished, other goals should not be forgotten. Among the other goals should be to reduce the DOD’s bloated overhead and its military service personnel costs.

Putting the primary focus on reducing contractors’ costs could lead to the other necessary goals receiving less attention than they deserve. In a similar manner, nominating a new SECDEF who is an expert on Congressional relations and understands how to deal with terrorist threats tends to miss the importance of solving the relationship issues with the DOD industrial base.

Ms. Erwin’s article cited a recent study by The Lexington Institute entitled, “Rethinking Competition in Defense Acquisition.” That study explored the Obama Administration’s belief that competition in defense acquisition is a good thing, and that competition leads to better goods and services at lower prices. As The Lexington Study asserted—

The defense department correctly asserts that competition is a powerful tool for achieving cost effective acquisition. It knows also that competition can encourage research and innovation; new services, products and uses; and increase quality, reliability and performance from suppliers. But these benefits depend on a market sufficiently appealing to attract more than one bidder.

In other words, the study asserted that increasing competition is difficult when there is only one, or perhaps two, bidders. For example, competitions to build new nuclear submarines and nuclear aircraft carriers are not going to see a lot of bidders. In fact, there is a de facto sharing agreement between the two contractors that can build new submarines, because the Pentagon needs to perpetuate the façade that the two shipyards compete with each other for new work. Thus, the notion that competition will lead to better acquisition outcomes fails with respect to many of the largest and most complex acquisitions.

But The Lexington Institute Study goes beyond that initial assertion to lay out the reasons why the Pentagon can’t achieve robust competition in many of its acquisitions. The study stated—

Kendall attributes the decline primarily to decreasing defense budgets and fewer competitive opportunities, but it is more clearly DoD’s own acquisition policies that too often fail to attract bidders. The Defense Business Board (DBB) observed that ‘DoD lacks sufficient understanding of business operating models and drivers of innovation.” DoD consistently fails to appreciate the connection between policy, DoD buyer behavior, and results. Predictably, competition rates continue to fall.

DoD’s approach continues to be self-centered – focusing on internal metrics, and establishing and enforcing policy. DoD’s mantra for competition fails to consider RAND’s conclusion that ‘In some cases (especially in the procurement of major systems where the nonrecurring cost is large), it may be less costly for the government to forgo competition and to rely on a single supplier.’ Competition takes time, and since in the defense acquisition monopsony, government is the only important buyer, and usually must fund the development of all potential entries in a competition, it is not at all clear that competition saves money when nonrecurring costs are high or production runs are low. Even so, competition can serve other objectives such as keeping critical design teams and research in place to ensure a healthy industrial base, and a viable pool for future critical acquisition needs.

[Emphasis added.]

We agree with The Lexington Institute’s assertion that there is a link between DOD acquisition policy and the willingness of non-traditional defense contractors to compete for new opportunities. Until the Pentagon rethinks its adversarial approach to managing its contractors, it is not going to see a lot of new bidders. And as a result, it is not going to see the kind of disruptive technology it says it needs to maintain the technological edge our warfighters currently enjoy.

We need a new Secretary of Defense who gets that the relationship needs to be that of a partnership, and not that of a married couple sticking together for the sake of their children, even though they’d rather be somewhere else, away from each other.