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Apogee Consulting Inc

Innovation Meets Resistance from Entrenched Bureaucrats

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“When leaders say they want innovation, what they want is spiral development and predictable forward progress. They don’t want disruptive innovation that upsets the status quo and puts jobs at risk.”

We wrote that more than a year ago, in discussing why the Pentagon was never going to get the innovative technology it says it wants. In that same article, we also wrote—

Disruptive innovation is the result of a vision plus hard development work, and the Pentagon doesn’t fund that type of effort much anymore. Disruptive innovation gets in the way of carefully managed, centrally planned, incremental improvements. Nobody wants to sponsor a wild hair idea that may, or may not, end up working out. While innovators seek to ‘fail faster’ the current Pentagon mantra is ‘failure is not an option.’ Thus, disruptive innovation has no patrons and has to fight a difficult battle against the forces that defend the status quo.

Further to those year-old thoughts, let us offer two pieces of evidence in support of our assertions.

First, follow this link to an article on TechWire, written by Jason Shueh, which discusses the problems faced by the 18F group at the GSA. For those readers who may be unfamiliar with the 18F group, it is described as “an office inside the General Services Administration that helps other federal agencies build, buy, and share efficient and easy-to-use digital services.” Started in 2014, after the debacle of healthcare.gov, 18F was supposed to bring disruptive technology solutions to the Federal government. Eleven of the first 15 employees of the group were Presidential Innovation Fellows, staffed from both government and industry.

Back to the TechWire article –

Multiple sources connected to 18F report that the group of former Silicon Valley tech innovators — that helps agencies buy, build and share technology — is grappling with opposition from GSA’s Federal Acquisition Service (FAS), the division managing funding for 18F. Speaking on the condition of anonymity, an authority inside 18F reported that FAS has on multiple occasions sought to defund the program due to some of its private-sector tactics, charging that while 18F strives to improve government purchasing and technology development, the group is also disrupting traditional procedures.

The article continued –

[Former GSA Administrator] Tangherlini said his worry for 18F, and innovation programs like it, is that the federal government’s risk-averse nature, and proclivity for tradition, will discourage top talent from entering civil service. The roster at 18F — and the U.S. Digital Service, its sister organization, that offers IT consulting in teams at the White House and agencies — boasts expertise from Google, LinkedIn, Facebook, Twitter and a host of other leading tech companies. The allure for these technologists to enter government isn’t a federal salary they could easily surpass in the private sector. The willingness comes from an ambition — as idealistic as it might sound — to enhance and rethink the systems and tools used by government to serve citizens.

Another article about 18F, this time from GovernmentTechnology (also written by Jason Shueh), reported more of the details regarding the “tension” between 18F and the entrenched GSA FAS bureaucracy. It stated—

Externally, 18F is defending itself from IT lobbyists, representing companies like IBM, Deloitte, Cisco Systems and others, that allege 18F is hindering revenues as a competing government tech provider — a message they shared at a recent hearing evaluating 18F's effectiveness. Internally, the group has met resistance from CIOs unsure of its private-sector development practices, and within the General Services Administration (GSA), 18F's parent agency, insiders say that the Federal Acquisition Service (FAS) that funds 18F is actively working to terminate the group. The sources report that 18F’s procurement work to break down IT contracts into smaller pieces has compelled FAS to act. They allege that FAS leadership fears shorter-term IT contracts at more competitive prices would decrease the revenues the organization receives from agencies via contract service fees and other FAS procurement vehicles.

In summary, the entrenched bureaucracy at GSA’s FAS group seems to be afraid of a government that works better and costs less (at least for technology projects) and is doing what it can to stifle disruptive innovation. The bureaucracy seems to be aided and abetted in its efforts by the “traditional” IT consulting firms, who stand to make bank by following the traditional Federal IT project approach of late deliveries, broken budgets, and unmet requirements. (A hat tip to Bob Antonio’s WIFCON site for pointing us to the 18F controversy.)

In related news, our second piece of evidence in support of our assertions concerns a recent report from the DOD Office of Inspector General. The DOD OIG report concerned the Advanced Arresting Gear (AAG) program, a Major Defense Acquisition Program (MDAP) managed by the U.S. Navy. According to the DOD OIG, the program is behind schedule and in an overrun position.

What’s the root cause of the programs problems?

The DOD OIG states the fundamental problem is “the Navy pursued a technological solution for its Ford-class carriers that was not sufficiently mature for the planned use, resulting in hardware failures to mechanical and electrical components, and software modifications to accommodate these failures.”

Yes, you read that correctly. According to the IG, the Navy’s problem was that it tried to innovate with insufficiently mature technology. Apparently, innovation should only be pursued with mature technology, technology that has been proven. The fact that this is a logical impossibility apparently escaped the DOD IG.

So there you have it, folks. Two anecdotes. Two pieces of evidence (plus the recent update article on the Palantir vs. DCGS fight) that support our pessimism regarding the Federal government’s ability to innovate and to facilitate innovation by its contractors.

Oh, how we wish we were wrong about this.

 

Another Lesson for Silicon Valley: The U.S. Army Doesn’t Want You

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We have written and opined extensively about the DOD’s attempts to woo Silicon Valley and obtain more commercially developed technology for warfighters. We have been skeptical about the entire initiative. We even devoted an entire article to the fight between the data management platform developed by Palantir and the data management platform developed by traditional defense contractors, called Distributed Common Ground Systems (DCGS).

In that article, written about 18 months ago, we summarized the situation thusly—

… a concrete example of innovative technology that works better and costs less than the traditional product that was designed, developed, and delivered by the traditional defense establishment. The only problem is that it’s disruptive and upsets the status quo. The Pentagon has gotten the innovative technology it said it wanted; but it won’t use it, even if that means soldiers’ lives may be at risk.

Now here we are again, 18 months later, and Palantir has just filed suit at the Court of Federal Claims seeking to have the Army’s entire acquisition strategy overturned. Palantir filed a pre-award bid protest, meaning that it believes the solicitation itself will lead to a flawed source selection decision.

According to this article at DefenseNews—

Palantir’s lawyers call the Army acquisition efforts for the Distributed Common Ground System-Army Increment 1 and Increment 2 both illegal and irrational. … Palantir is arguing the way the Army wrote its requirements in a request for proposals to industry would shut out Silicon Valley companies that provide commercially available products. The company contended that the Army’s plan to award just one contract to a lead systems integrator means commercially available solutions would have to be excluded. … A successful lawsuit, according to the court document, could result in breaking down walls the Army has historically built up between its ‘failed procurement approach and the innovations of the private sector.’

There’s more to the DefenseNews article and you should read it in its entirety. In essence, Palantir has asserted that the Army’s failure to adopt its lower-cost, better functioning product has cost casualties. If that’s true, this is more than a procurement story; it’s a story about failed leadership.

More to come on this, we are sure.

 

Northrop Grumman’s Subcontractor Management Puts $10 Billion Program at Risk

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From time to time we bloviate about the importance of subcontractor management to effective program execution. Here’s a link to a recent story about Northrop Grumman’s management of a Triton program subcontractor. Corrective Action Requests (CARs) that date back to 2013 are jeopardizing the program’s ability to obtain Milestone C approval. Milestone C would move the program from development to Low-Rate Initial Production (LRIP). The LRIP phase of the program has been estimated to be worth $4 Billion to NOC. Moving from LRIP to FRP would add perhaps another $6 Billion to the pot, bringing the Triton’s program value (excluding development) to about $10 Billion, according to the article.

How much would you pay to ensure your $10 Billion program received Milestone Decision Authority approval? We bet you’d pay quite a bit. We bet you’d bring in engineers and quality assurance experts and experts in composite manufacturing, and you’d drop them into that supplier and have them camp there until all the problems had been fixed. We bet anybody who tried to argue about budget overruns and cost/schedule variances would be told to STFU because there was $10 freakin’ BILLION dollars at stake. But that’s at your company.

Apparently at Northrop Grumman, subcontractor management is handled a bit differently.

That’s a shame, really, especially if you are a NOC shareholder.

Finally, anytime you think we’re full of hot air, and that we are making too much noise about the importance of subcontractor management, feel free to review this article.

 

DOE Withdraws Proposed Business System Rule

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More than two years ago we reported on the Department of Energy’s implementation of a business system administration regime, one that was remarkably similar to (but not a copy of) the DOD’s business system administration regime. Late last year, we collected some of our thoughts on the state of the DOD’s business system administration regime. Since that time we have found no reason to change our mind regarding those thoughts. The current DOD business system administration regime just ain’t working out the way the DAR Council thought it would.

Everybody knows it just ain’t working; but nobody has said so publicly.

Except for Apogee Consulting, Inc. We called for a new approach last November at the ABA Section of Public Contract Law meeting. Not that our call for action resulted in any action being taken ….

Everybody knows DCAA is understaffed to perform its share of the business system reviews. Everybody knows that DCMA is unable to review and issue System adequacy determinations within the timelines established in the applicable DCMA Business Instructions. Everybody knows it takes too long and costs too much money to fulfill the regulatory (and internal) requirements associated with Contractor Business Systems administration and management. They just don’t talk about it.

We all shrug and try to do the best we can with a misguided and obviously flawed approach. What else can be done? There seems to be no appetite for change at the moment. Which is unfortunate ….

Thus, we took it as a very good sign that the DOE withdrew its proposed rule that would have officially implemented its version of Contractor Business System administration on July 6, 2016.

No rationale was provided. The Federal Register notice said simply: “the Department has determined that it will not proceed with the rulemaking and, as such, is withdrawing the proposed rule.”

We are left only with speculation regarding the motivation(s) for withdrawing the proposed rule.

Was it a belated recognition that five years of evidence has shown the flaws inherent in the DOD’s implementation?

Was it an acknowledgement that DOE lacks the necessary resources to effectively implement the proposed rule—especially because (for the moment) DCAA is prohibited from performing any business system reviews on behalf of DOE?

Was it recognition of the resources and costs associated with contractor business system administration and management—costs which would have to be borne by DOE? Did somebody do the math and calculate the impacts to DOE’s budget?

Obviously we don’t know why DOE withdrew the rule after more than two years of consideration. But we are glad the Department did so.

Good move, DOE.

 

Fat Leonard Continues to Spread

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The first time we discussed the “Fat Leonard” scandal was at the end of 2013, when we wrote “The DOD Leadership is focused on beating up its industrial base, because it simply cannot face the fact that its own house is in slip-shod repair and in desperate need of attention. It’s clear that the Department of Defense needs a thorough house-cleaning, from top to bottom.”

If you follow the link above to our original article, you’ll find background on the Glenn Defense Marine Asia (GDMA), and on its corrupt practices, as well as some details on the widespread corruption and “systematic weaknesses in the Navy’s worldwide contracting bureaucracy.”

We’ve mentioned GDMA from time to time, mostly in passing. We’ve noted a couple of indictments, a couple of guilty pleas, a couple of sentences. We thought we’d take a minute and catch our readers up on the continuing scandal.

We were prompted to recap the story (so far) by this Dept. of Justice press release, which announced that Paul Simpkins, a retired DOD “supervisory contracting officer” had pleaded guilty to charges of accepting “hundreds of thousands of dollars through wire transfers to a bank account in Japan controlled by Simpkins’s former wife.” In return, Simpkins admitted that he “extended GDMA’s contract after a subordinate recommended the contract not be extended due to high costs; instructed U.S. Navy officials in Hong Kong to discontinue using meters that ensured proper accounting of the amount of waste that GDMA removed from U.S. Navy ships to ensure that no overbilling occurred; and instructed a U.S. Navy official to ignore invoices that GDMA submitted after Francis complained that U.S. Navy personnel were asking questions.”

The “Fat Leonard” tally so far, as summarized by The Washington Post:

A federal prosecutor said last year that 200 individuals were under investigation. Of those, about 30 are admirals, Navy officials have said.

Fourteen people have been charged so far in federal court, all but three of whom have pleaded guilty. Justice Department officials have said more arrests are likely. Another Navy contracting official who worked in the same office with Simpkins has been arrested in Singapore and faces corruption charges there.

The scandal has its own Wikipedia page. It includes the following:

A number of American naval personnel have been arrested as a result of the investigation, including two navy commanders, a navy captain, and a special agent with NCIS. The chief of naval intelligence was stripped of his security clearance. Also, two admirals were suspended, and three admirals were censured by Ray Mabus, the Secretary of the Navy, and forced into retirement after it was determined that they improperly accepted gifts from Francis. …Those three officers served with the USS Ronald Reagan strike group in 2006 and 2007 while the bribery occurred.

Captain Daniel Dusek, who oversaw operations in the US Pacific Fleet, became the highest-ranking Navy officer to be convicted in one of the US military’s worst bribery scandals. In addition to the 46-month prison sentence, a US judge ordered Dusek to pay $100,000 in fines and restitution for passing ship and submarine schedules to Glenn Defense Marine Asia … In June 2016, the US Navy announced that Rear Admiral Robert Gilbeau was to be charged in the case. He would be the 14th officer charged, and the most senior. He had served as a supply officer in several ships served by GDMA.

As for Fat Leonard himself, the Wikipedia article reports that –

On January 15, 2015, Francis, 50, pleaded guilty to all charges in San Diego federal court. He admitted to bribing scores of U.S. Navy officials with $500,000 in cash, sex from prostitutes, lavish hotel stays, and luxury goods. Leonard admitted to using his Navy contacts, including US Navy ship captains, to obtain classified information and to bilk the Navy out of about $20 million by steering ships to specific ports in the Pacific and falsifying service charges. In his plea, Francis identified seven Navy officials who accepted bribes. The 6-foot-3-inch, 350-pound Malaysian playboy faces a maximum prison sentence of 25 years and agreed to forfeit $35 million in personal assets.

One of the biggest challenges in establishing anti-fraud and anti-corruption internal controls is that most people don’t want to believe their employees (or executive officers) would actually stoop so low. They don’t want to believe that all those controls are actually needed.

Well, we’re here to tell you that those internal controls absolutely are needed. From Segregation of Duties to inventory cycle counts to Accounts Payable data mining, it’s all necessary and a worthwhile investment.

Because it can happen to you.

 


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Newsflash

Effective January 1, 2019, Nick Sanders has been named as Editor of two reference books published by LexisNexis. The first book is Matthew Bender’s Accounting for Government Contracts: The Federal Acquisition Regulation. The second book is Matthew Bender’s Accounting for Government Contracts: The Cost Accounting Standards. Nick replaces Darrell Oyer, who has edited those books for many years.