DoD Splits Costs With Industry


You've got to spend money to make money. Such is the axiom Defense acquisition officials are following as they pursue a new program to invest more money in commercial research and development. While they don't expect to "make" money on the investment, they expect to reap substantial savings by taking advantage of commercially developed technology to fill military requirements.

Under the dual-use applications program announced in January by Paul Kaminski, the outgoing undersecretary of Defense for acquisition and technology, the Defense Department will invest $185 million in commercial applications this year: $85 million in commercial science and technology development with potential military applications; $100 million in upgrades to already fielded systems to reduce the cost of maintaining those systems. If the pilot proves successful, Kaminski anticipates more money will be made available for the program.

"The Department of Defense must take advantage of the opportunity to apply commercial technology to enhance our capabilities," Kaminski says. With commercial investment in research and development outpacing Defense investment in research and development by a factor of two, it is critical the department look to the commercial sector for potential applications, he says.

Under the science and technology component of the program, the services will review industry proposals for the development of commercial technologies with military applications. Selected projects will receive 25 percent of their funding from the service, 25 percent from the Defense Department and 50 percent from the contractor. By requiring the services to share in the funding costs, DoD is trying to force a culture change whereby the services look to the commercial sector first before embarking on their own research and development projects.

"Our culture in this department in the past has been we have our own laboratories, we develop all of our own technology. It is easier to do that if you have the resources to do that than to take the time to see what's happening commercially and to try to leverage what's being done commercially so it has a few hooks that we need for our applications," Kaminski says.

New Acquisition Approach

The other aspect of the dual-use applications program will be the department's investment in commercial applications to reduce the operation and support costs of military systems already fielded. Because 65 percent to 70 percent of the life-cycle costs of major weapons systems is incurred after the weapon is fielded, and because the services are keeping weapons systems in the inventory for increasingly longer periods, there is tremendous savings potential in applying commercial technology to systems upgrades.

Under the commercial operations and support savings initiative (COSSI) the Defense Department will begin to prototype a new acquisition approach for various weapon systems upgrades. To develop and test the installation package for a particular upgrade, what the department refers to as a "modification kit," the services will operate outside the normal procurement laws under authority granted DoD in Section 845 of the 1994 Defense Authorization Act (P.L. 103-160) and extended to the services in Section 804 of the 1997 Defense Authorization Act (P.L. 104-201).

Under the new authority, the services can develop more flexible agreements with contractors with far fewer regulatory requirements than a typical contract under federal acquisition regulations. Specifically, COSSI development and testing agreements won't generally require government cost accounting standards or audits and intellectual property provisions that differ from those found in standard procurement contracts may be negotiated.

Funding under the agreements will be based on "payable milestones"-observable technical events that the contractor and government agree in advance will be the basis for incremental payments.

"This means we don't have to write a standard bureaucratic contract," says John Douglass, assistant secretary of the Navy for research, development and acquisition. "It allows us to get on the contract very quickly and to form cost-sharing agreements and so on that we could not form in the normal armed services procurement regulation structure.

Once the value of the modification kits is demonstrated, the services then may contract for the kits to provide equipment upgrades that will save operating and support costs over the long term.

"We're trying to incentivize that a little bit-that is, show our good faith in our willingness to share some of the costs of developing that kit for our application," Kaminski says.

For example, the Navy's F-14 fighter aircraft uses a mechanical gyroscope in its inertial navigation system. The mean time between failures of the gyroscope is about 40 hours, which makes it a high-maintenance item and puts the operating and support costs for it on an ever-increasing curve. If the Navy were to replace the mechanical gyroscope with a commercially developed global positioning system, which has a mean time between failure rate of 4,500 hours, the Navy could reap substantial savings over the long term.

"The problem is, that costs some money to start with. It requires applying, for example, a commercially developed inertial navigation system, testing it, and qualifying it on one of our platforms. That's what this front-end money is being spent to do-to be able to take a piece of commercial equipment, test it, and qualify it for a military application," Kaminski says.

For more information and a program description and solicitation for the commercial operations and support savings initiative, call (800) DUAL-USE; fax your request to the Joint Dual Use Program Office at (703) 807-0678; send an e-mail request to Dual-Use@arpa-mil; or download from the World Wide Web at

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