Pentagon official searches for the source of contracting waste

Frank Kendall arguably has the most difficult job in all of federal acquisition -- rooting out the source of entrenched waste in the Defense Department's $375 billion-per-year contracting system.

It's an assignment that, over the years, many have undertaken, but few have completed. In his first interview since being confirmed in March as principal deputy undersecretary of Defense for acquisition, technology and logistics, Kendall told Government Executive that he plans to approach the mission from a different perspective -- a ground-up strategy examining the root causes of waste and inefficiency.

"I have been around this business for about 40 years and have been through every cycle of acquisition reform at least once or twice," Kendall said. "But, I don't know that we have really gotten at the built-in incentives to optimism that exist in our system or gotten at what we are really paying for with our somewhat unrealistic projections about schedule, technology or cost."

As the department's second-highest ranking politically appointed acquisition official, Kendall has assembled a team of people from Pentagon headquarters and the various service agencies to decipher and measure the sources of acquisition waste.

But the examination is more than a simple process-oriented review to eliminate system redundancy or streams of paperwork. Kendall wants to reform the behavior and incentives that lead to cost inefficiencies, some of which are deeply engrained in the Defense acquisition process.

"DoD is in the business of doing programs and we have been a factory for programs for many years," he said. "But we still don't have the process of doing programs well understood and well under control."

For example, Defense has a tendency to sign on to the next latest and greatest technological advance, no matter if the program is necessary, ready or affordable, he said. Budget operators and service leaders, meanwhile, want to spend as little as possible for weapons systems, but then impose unrealistic schedules on contractors. And companies place bids on contracts that are overly optimistic, hoping they will recoup costs further downstream, according to Kendall.

"I am hopeful that once we understand what those behaviors are costing us in terms of inefficiency then it will be easier to change them," he said. "That is a hypothesis that has yet to be proved."

Reforming the acquisition system of the largest single buyer of goods and services on the planet will not be easy. Interest groups scattered throughout the Pentagon advocate passionately for pet projects. Congress is deeply invested in keeping Defense projects -- and the jobs associated with them -- in their backyard, an all-too familiar scenario that most recently has played out with the F-35 Joint Strike Fighter.

"There is a certain amount of institutional inertia that needs to be overcome," Kendall said.

The West Point alumnus has seen the Defense system from all angles. He spent a decade on active duty in the Army and later held various departmental jobs, including director of tactical warfare programs. Kendall has served as a consultant to industry and nonprofit research firms and was vice president of engineering at Raytheon, one of the largest Pentagon contractors. Most recently, he was a managing partner at Renaissance Strategic Advisors, a Virginia aerospace and defense sector consulting firm.

Kendall returns to Defense at a time of intense transition. The Pentagon has cut several big-ticket programs, addressed significant reforms to its weapons procurement system and begun the process of building up its in-house skill sets, particularly in the fields of engineering, program management and acquisition.

Last year, Defense Secretary Robert Gates announced he would reduce the percentage of support service contractors from its current level of 39 percent of the workforce to its pre-2001 level of 26 percent. The Pentagon will replace those contractors during the next five years with 39,000 new full-time government employees, 20,000 of whom would be acquisition professionals, although the latter figure could grow, Kendall said.

The additions to the Pentagon acquisition workforce would be split roughly between 10,000 insourcing conversions and 10,000 new hires. As of the end of March, the department has hired approximately 4,800 new employees, nearly two-thirds through insourcing, according to Defense spokeswoman Cheryl Irwin.

Industry officials have criticized the insourcing initiative as "quota driven," arguing routine commercial activities are being moved in-house without any verifiable cost savings. But Kendall claims those concerns are off target and miss the big picture.

"Our focus has been on bringing certain skills and certain capabilities back into the government that had gone out," he said. "We are less concerned about cost comparisons."

And while the department and the various service agencies have set specific insourcing targets through discussions with their buying commands, Kendall said the process is being conducted carefully and deliberately. "When people use the word 'quota' there is a perception of arbitrariness," he said. "That is not our intent. We are trying to bring in specific needs of the government to do jobs where they atrophied too much. … We are not measuring performance in terms of pure numbers. We want quality and we want the right kinds of people brought in to do the work that needs to get done."