Pentagon Acquisition Chief Reaffirms the Value of
FFRDCs and The Aerospace Corporation

EL SEGUNDO, Calif. (2/1/98) -- (In a visit to Aerospace headquarters in El Segundo, California, Feb. 21, Dr. Paul Kaminski, undersecretary of defense for acquisition and technology, shared with employees his perspective on the importance of FFRDCs and The Aerospace Corporation. The text of his address follows.)

I would like to take a few moments to talk about how FFRDCs [federally funded research and development centers] are viewed in Washington, my assessment of the once-proposed Aerospace and SAIC merger, and the future opportunities in front of you as the Department's space systems engineering FFRDC.

Let me start by acknowledging that for nearly a half-century now, America has invested heavily in the growth of a strong research and development establishment to sustain the technological supremacy of U.S. combat forces. Our investment has served us well through the years.

Today, the Department of Defense (DoD) sponsors 12 not-for-profit, federally funded research and development centers. Each of them has some very different missions. And they have some very different compositions.

FFRDCs Are Critical Assets

As I have testified consistently before the Congress, FFRDCs are a very critical national asset. I believe so for four basic reasons:

1. They maintain long-term strategic relationships with their DoD sponsors; here at The Aerospace Corporation, it is the Air Force.
2. They perform the research, development and analytic tasks that are integral to the mission and operations of their DoD sponsors.
3. They maintain "core" competencies in areas important to their sponsors and employ this expertise to perform high-quality, objective work that cannot be carried out as effectively by other private or public organizations.
4. They operate in the public interest, free from real or perceived conflicts of interest. These are really the four key underlying reasons why FFRDCs are indispensable to national security. As the Department downsizes, FFRDCs have become increasingly important as centers of independent technical expertise and support.

These factors were among the considerations which led a Defense Science Board (DSB) task force to conclude in their independent review about two years ago in April of 1995 that: "FFRDCs should be retained on the strength of their quality and the special relationships they have with their sponsors on matters of great importance to the DoD."

And incidentally, nearly every single independent review and every inquiry that I have conducted has come back to confirm this basic conclusion.

The sole exception is the recently released January 1997 report by a second DSB task force that was chartered to review and advise DoD on the management of FFRDCs and UARCs, University Affiliated Research Centers.

The DSB task force provided a number of suggestions on how to improve specific management practices for FFRDCs. We intend to examine carefully the task force's findings in these areas and to implement recommendations that appear worthwhile.

However, many of the report's findings, including most items highlighted in the Executive Summary, address broad management policy issues for FFRDCs that go beyond the charter of the task force.

Some findings are not well-substantiated or documented, and contradict my own experience and the experiences of the majority of sponsors and users of FFRDC research products throughout DoD.

They also ignore or are inconsistent with the results of recent internal reviews of FFRDCs, as well as the previous DSB task force report on FFRDCs of April 1995.

Overall, it is my sense that the current DSB task force was neither established nor staffed to address broad policy issues regarding FFRDCs, and its findings on these subjects are questionable.

My bottom line is that I believe--and this belief is held widely in the Department, both by civilian and military leaders--that FFRDCs are doing high-quality, high-value technical and analytic work that could not be provided as effectively by other means.

Let me assure you that the people who are complaining about FFRDCs are not the users of their services or the recipients of their products. FFRDCs are doing their jobs for DoD, and they're doing them well.

The essence of their value to DoD lies in the qualities that I mentioned previously, starting with the long-term strategic relationship. I might note that this is one area where DoD has been in front of the commercial sector in its acquisition practices.

Successful commercial firms are moving increasingly in the direction of establishing long-term, strategic relationships with their key suppliers. They have found the result is often a higher-quality product, at lower overall costs, in contrast to the previous practice of changing suppliers based on recurring, short-term low bids. DoD has long realized this benefit from FFRDCs.

I am not arguing that competition is inappropriate. The Department uses competitive processes to obtain the overwhelming majority of the goods and services that we require. But there are some circumstances and some kinds of work, for which the value provided by a strategic relationship far outweighs the potential gains of competition.

Even in a long-term relationship, if we are dissatisfied with the work performed, we have the opportunity for a "dissimilar competition" and [can] outsource that work with another FFRDC.

A Difficult Period

We have had a very difficult period over the last three years. We've seen the Congress put various restraints on FFRDCs, including the somewhat arbitrary ceilings placed on expenditures, various restrictions on management, executive and employee compensation limits, and various other restraints on operations.

One might almost get the message that you are not wanted if you look at this list of restrictions and constraints.

I've made a commitment over the last two-and-a-half years to work with the Congress on these issues, because I believe that our FFRDCs in general, and The Aerospace Corporation in particular, are a very critical national asset that we need to continue to nurture and effectively exploit to leverage DoD operations.

On the whole, I've been working with very good support from most of the Congress in general on all of these issues.

We were successful last year in having our issues heard in a full hearing before the Military R&D Subcommittee of the House Committee on National Security. I think this hearing went extremely well. We have been working to move away from the arbitrary financial caps; instead to work to a program that I would describe as "core workload," and manage on this basis rather than the imposition of arbitrary financial ceilings.

The core concept gets at the heart of the special strategic relationship that exists between the DoD and our FFRDCs.

It is difficult in some cases to define core workload with two or three digits of accuracy, but we have developed definitions, and as we continue to fine-tune them, they are gaining wide acceptance as a workable approach.

Something I believe Aerospace must do is continue to concentrate on your five core competencies: launch certification, system-of-systems engineering, systems development and acquisition, process implementation, and technology application. When we fail to "stick to our knitting," this is when we get into trouble with the Congress.

We have been working to systematically move away from what I would call congressionally mandated impositions on management of FFRDC operations.

Convincing the Critics

The Department's management initiatives, such as the FFRDC Management Plan and Five-Year Plan, have convinced most of our critics that we have effectively addressed their concerns about our management and use of FFRDCs. And for those we have not fully convinced, I pledge to continue my efforts to work to convert the few remaining critics.

Specifically, I think we are becoming effective in making the case that the Department will "stick to its knitting" where FFRDCs are concerned, using FFRDCs to perform only this critical core work for which they were established. It is the reason why we must accept and implement the DoD FFRDC Management Plan, paying careful attention to remain focused on the FFRDC and its core competencies. It is also the reason why requests to perform non-FFRDC work will be subjected to great scrutiny. Approval will only be granted on a case-by-case basis when it can be shown that such work is in the best interest of the government.

The Air Force has indicated willingness to allow Aerospace to perform a limited amount of non-FFRDC work, about 50 staff years of technical effort per year, subject to the case-by-case review. I believe we have made significant steps forward with the Congress. And I believe we will see the momentum generated thus far will carry us further if we do as we say we would.

I see the glass as a little more than half full. We had generally supportive language in the Congress last year, but there's still some work ahead as we begin to resurrect and provide the kind of long-term basis for planning and stability that we need to be able to exploit the full potential of our FFRDCs.

In the end, it comes down to people. It means first attracting, then keeping, the best and brightest. It's hard to attract good people with the kind of restraints that have been imposed. To keep good people, we must give challenging work, worthy of respect from one's peers.

There is a quantum mechanics analogy that can be drawn here. From quantum mechanics, one can look at the particle versus wave nature of motion. When our focus is on delivered product packages, it's like we're looking at individual particles. But we also need to consider the underlying skill base to address problems. It is easy for us to become too preoccupied with specific packets of work delivered and miss the inherent benefit of having the people we can call on when we have a problem.

I am cautiously optimistic that continued sound management by DoD will result in elimination of arbitrary financial ceilings and compensation caps by Congress in fiscal year 1998.

These are issues that will continue to be at the core of my priorities. I will tell you that I've devoted a lot of time to these issues because my personal experience reinforces how very important they are. It takes time to build an organization like The Aerospace Corporation. It's fragile: easy to destroy, very hard to rebuild.

Merger Proposal

This point was very clear to us from September through November of last year when we looked long and hard at the proposed merger between SAIC and The Aerospace Corporation.

I agreed with the Air Force's decision to not support the proposed merger. We recognized the Air Force's, indeed the national security space sector's, dependence on the unique structure of the Aerospace FFRDC--a structure that allows you to operate as a true trusted-agent on the nation's behalf.

We looked at many options for how we might operate without the Aerospace FFRDC, including competing the work performed by the Aerospace FFRDC in "bite-sized pieces" as the tasks to be performed by the for-profit entities.

This looked unattractive to us. We would be losing the services of an objective, independent agent that could look across the entire spectrum of space activities, free from conflict of interest. I do not see this general state of affairs changing soon. We will continue to need you, our space FFRDC, now and well into the future.

So while there were difficult aspects for all of us in considering the proposed merger, one benefit was the reinforcement of our policies and the sharper recognition of our need for our space FFRDC.

The Future

Now, let me spend just a few minutes talking a little more about the future--where we are headed and maybe a little about the role that you'll have to play in that future.

Space has become an area of strategic significance to the United States and to continued U.S. leadership in the world now and into the next century.

The ability of the U.S. and its allies and friends to move toward a robust global market that enjoys increased prosperity and stability will in large measure depend on our stewardship of space assets and supporting infrastructure. Our position in space is a significant factor when I work with my counterparts abroad to forge cooperative programs.

Four space sectors--civil, commercial, international, and national security--are putting space infrastructure in place today and in the immediate future. It is my sense that these investments will help shape the avenues of commerce for the 21st century.

Within the U.S., cooperation among the civil and national security sectors is essential if we are to increase the capabilities of our space infrastructure while meeting the goals of fiscal restraint necessary for the economic health and security of the nation.

More importantly, cooperation with the commercial and international sectors will serve not only to reduce the space infrastructure capitalization needs, but bind the participants more closely together--a fundamental tenet of our national security strategy of engagement.

DoD, having been a leader in developing and fielding a significant part of the space infrastructure, shares an important role in providing leadership on this path toward greater intersector cooperation. The Aerospace Corporation, with it's unique core competencies and cross-cutting expertise, is in a unique position to assist the DoD in this role.

This year's budget numbers tend to confirm that a more integrated approach toward the exploitation of space by these four sectors is necessary. The total national security space budget is about $14 billion. Aside from the decrease associated with the space-based portion of the old Strategic Defense Initiative, the defense space budget is remaining fairly constant.

One exception is the additional $100 million in the fiscal year 1998 budget and an additional $509 million over the future years defense plan to accelerate the Space and Missile Tracking System--the low component of the Space-Based Infra Red System--moving the first launch from FY 2006 to FY 2004.

In FY 1998, about $400 million will be spent by the Ballistic Missile Defense organization on promising space technologies, and I would expect this to increase in the future. The important point to remember is that national security and civil space expenditures will be approaching parity, primarily from growth in the civil space sector.

The U.S. Department of Commerce estimate for all commercial space activity is about $8 billion, and this number is expected to double in the next 10 years with the advent of low and medium Earth-orbit communications satellites. In the international sector, at least another $7.2 billion is being spent: $5.1 billion in Western Europe and $2.1 billion in Japan.

In this environment, defense investment in space activities is still significant and keeping pace with inflation, but the relative size of our activities is shrinking with respect to the other space sectors. Out of about 40 total expendable launches projected for 1997, nearly half are DoD and the other half are commercial. There is now a significant dual-use aspect of space--with growing movement from separate defense and commercial industrial bases to an integrated industrial base.

Many of you sitting in the audience today have a critical role to play in this kind of endeavor, understanding as you do the aspects of many of both commercial and DoD space systems and how they can be better configured and tied together to be more effective.

The secret behind our future success will be the use of the latest available dual-use commercial technologies. In the past, DoD had a clear lead in most capabilities in space and was driving the most important advances.

In the future, commercial activities are moving ahead in many fields, especially in advanced information systems, processing, and communications.

We in DoD need to better leverage these commercial developments by application of system engineering to develop the mission applications and architecture, and adding the system integration "glue" to missionize the equipment for DoD's purposes. These are the core competencies of The Aerospace Corporation. It is something the Department will continue to rely on as we leverage and integrate dual-use technologies in large system-of-systems architectures.

The last future opportunity I'd like to discuss today is how to realize the benefits of our whole program of acquisition reform, the principal benefit being reduced acquisition cycle times. You play a major role here too. Sometimes many of us in the acquisition business forget that our main aim is to field systems, not to conduct endless reviews or to impede development by imposing unnecessary hurdles.

My objective is to get systems fielded that will be useful to our combat forces and to do that as quickly and with as low a cost as we possibly can. And cycle time is a key measure of progress.

Empowering People

To do this, the importance of empowering the people in our acquisition system cannot be overemphasized.

As I travel and visit various programs and conduct sessions such as this one today, it is apparent that the principal advantage in our system comes down to our people.

We are enormously blessed in this country with extremely talented people, both operationally and on the engineering side as well. In most situations, the issue is one of empowerment, that is, turning our people loose to really allow them to operate in an effective and efficient way.

A major goal of our acquisition reform activities is to begin to change that culture that we've all been operating under--a culture that has been built up from the combination of all the procedures we've established over the years, each one well intentioned to stop some particular problem that happened in the past.

The result is the horrendous opportunity cost that comes from the combination of procedures that restrain our people from executing in a more productive way. It has produced a situation where I believe we may be spending billions in order to save millions.

So one of the major thrusts of our acquisition reform activities is to remove the unnecessary restrictions in a systematic way and to change the culture.

This cannot be accomplished by working only from the top. One must avoid the natural tendency to sign a policy memorandum in Washington and say "OK, that's it, it's fixed now." The communication channels need to be open-top down, bottom up and horizontally among peers.

We need to not just be talking the talk, but walking the walk. Our goal is to create an environment in which it's sensible for program managers to take prudent risks, to use commercial items, to move the program on and to reduce our acquisition cycle times. It requires the support and participation of the entire acquisition team, including you, our FFRDC team members.

This was part of the reason for having a second "Acquisition Reform Day" next month on March 19. We have set aside this week to give you an opportunity to pull together your government-industry team--to look at the way you are doing business now, and to explore how we might improve the way we do business in the future.

Last year, on May 31, we concluded our first acquisition reform day. The theme last year was "The End of the Beginning," a phrase which I borrowed from Winston Churchill [delivered] at the time the U.S. entered World War II. I chose that theme because we have made great strides in initiating many reforms; but we still had a long way to go before those reforms were fully implemented across the entire Department of Defense.

This year our theme is "Sustaining the Momentum: Full Speed Ahead." We now need to think seriously about how we propagate existing and new reforms throughout our large and diverse defense acquisition system at all levels, from base procurement to major programs. You have already played a strong role in implementing acquisition reforms on programs like SBIRS, Milstar and GPS.

Your success in pulling together and operating as a team, with open communications and no surprises, will in large part be the overall key to our continuing success in implementing further reforms. Together, we have to focus on getting and keeping costs down. If we truly view cost as an independent variable, then the government-contractor teams need to collectively agree on ways to incentivize cost reductions. Again, you have an important role to play here as well.

The government must be willing to trade off minor reductions in performance requirements for significant reductions in cost, and industry must work with us to identify such opportunities.

It is my sense that we have made a lot of progress in implementing reforms on our major programs. There is less progress on smaller programs as well as in our depots and base-level contracting activities.

Summary: the Value of FFRDCs

In closing, let me underscore my own sense and that of the Department's senior leadership team about the value of FFRDCs.

FFRDCs are critically important national assets. They have provided key contributions in the past--contributions that I'm personally familiar with. And they will address critical needs now and in the future.

FFRDCs are the kind of assets that take a very long time to develop. Unfortunately, they can be destroyed in a short period of time by a few damaging actions. We are now making progress convincing the Congress of this fact.

But there is more to do, and I am personally committed to working with the Congress to remove arbitrary constraints on the operation of our FFRDCs. I am cautiously optimistic that we will be successful in reaching this objective.

The work of the FFRDCs--like The Aerospace Corporation--is not over. I see an increasing, not decreasing, need for the kind of specialized systems engineering and analysis skills that can help the Department efficiently execute it's space mission.