We Gotta Get Out of This Place — Are Our Contracting Systems Agile Enough?

The question in the title refers to agile in the “traditional” sense and not the big “A” appropriated sense.  But I’ll talk about big “A” Agile also.

It also refers to a number of discussions I have been engaged in recently among some of the leading practitioners in the program and project management community. Here are few data points:

a.  GAO and other oversight agencies have been critical of changing requirements over the life cycle of a project, particularly in DoD and other federal agencies, that contribute to cost growth.  The defense of these changes has been that many of them were necessary in order to meet new circumstances.  Okay, sounds fair enough.

But to my way of thinking, if the change(s) were necessary to keep the project from being obsolete upon deployment of the system, or were to correct an emergent threat that would have undermined project success and its rationale, then by all means we need to course correct.  But if the changes were not to address either of those scenarios, but simply to improve the system at more than marginal cost, then it was unnecessary.

How can I make such a broad statement and what is the alternative? we may ask.  My rationale is that the change or changes, if representing a new development involving significant funding, should stand on its own merits, since it is essentially a new project.

All of us who have been involved in complex projects have seen cases where, as a result of development (and quite often failure), that oftentimes we discover new methods and technologies within the present scope that garner an advantage not previously anticipated.  This doesn’t happen as often as we’d like but it does happen.  In my own survey and project in development of a methodology for incorporating technical performance into project cost, schedule and risk assessments, it was found that failing a test, for example, had value since it allowed engineers to determine pathways for not only achieving the technical objective but, oftentimes, exceeding the parameter.  We find that for x% more in investment as a result of the development, test, milestone review, etc. that we can improve the performance of some aspect of the system.  In that case, if the cost or effort is marginal then, the improvement is part of the core development process within the original scope.  Limited internal replanning may be necessary to incorporate the change but the remainder of the project can largely go along as planned.

Alternatively, however, inserting new effort in the form of changes to major subsystems involves major restructuring of the project.  This disrupts the business rhythm of the project, causing a cultural shift within the project team to socialize the change, and to incorporate the new work.  Change of this type not only causes what is essentially a reboot of the project, but also tends to add risk to the project and program.  This new risk will manifest itself as cost risk initially, but given risk handling, will also manifest itself into technical and schedule risk.

The result of this decision, driven solely by what may seem to be urgent operational considerations, is to undermine project and program timeliness since there is a financial impact to these decisions.  Thus, when you increase risk to a program the reaction of the budget holder is to provide an incentive to the program manager to manage risk more closely.  This oftentimes will invite what, in D.C. parlance, is called a budget mark, but to the rest of us is called a budget cut.  When socialized within the project, such cuts usually are then taken out of management reserve or non-mandatory activities that were put in place as contingencies to handle overall program risk at inception.  The mark is usually equal to the amount of internal risk caused by the requirements change.  Thus, adding risk is punished, not rewarded, because money is finite and must be applied to projects and programs that demonstrate that they can execute the scope against the plan and expend the funds provided to them.  So the total scope (and thus cost) of the project will increase, but the flexibility within the budget base will decrease since all of that money is now committed to handle risk.  Unanticipated risk, therefore, may not be effectively handled in the future.

At first the application of a budget mark in this case may seem counterintuitive, and when I first went through the budget hearing process it certainly did to me.  That is until one realizes that at each level the budget holder must demonstrate that the funds are being used for their intended purpose.  There can be no “banking” of money since each project and program must compete for the dollars available at any one time–it’s not the PM’s money, he or she has use of that money to provide the intended system.  Unfortunately, piggybacking significant changes (and constructive changes) to the original scope is common in project management.  Customers want what they want and business wants that business.  (More on this below).  As a result, the quid pro quo is: you want this new thing?  okay, but you will now have to manage risk based on the introduction of new requirements.  Risk handling, then, will most often lead to increased duration.  This can and often does result in a non-virtuous spiral in which requirements changes lead to cost growth and project risk, which lead to budget marks that restrict overall project flexibility, which tend to lead to additional duration.  A project under these circumstances finds itself either pushed to the point of not being deployed, or being deployed many years after the system needed to be in place, at much greater overall cost than originally anticipated.

As an alternative, by making improvements stand on their own merits a proper cost-benefit analysis can be completed to determine if the improvement is timely and how it measures up against the latest alternative technologies available.  It becomes its own project and not a parasite feeding off of the main effort.  This is known as the iterative approach and those in software development know it very well: you determine the problem that needs to be solved, figure out the features and approach that provides the 80% solution, and work to get it done.  Improvements can come after version 1.0–coding is not a welfare program for developers as the Agile Cult would have it.  The ramifications for project and program managers is apparent: they must not only be aware of the operational and technical aspects of their efforts, but also know the financial impacts of their decisions and take those into account.  Failure to do so is a recipe for self-inflicted disaster.

This leads us to the next point.

b.  In the last 20+ years major projects have found that the time from initial development to production has increased several times.  For example, the poster child for this phenomenon in the military services is the F35 Lightning II jet fighter, also known as the Joint Strike Fighter (JSF), which will continue to be in development at least through 2019 and perhaps into 2021.  From program inception in 2001 to Initial Operational Capability (IOC) it will be 15 years, at least, before the program is ready to deploy and go to production.  This scenario is being played out across the board in both government and industry for large projects of all types with few exceptions.  In particular, software projects tend to either fail or to meet their operational goals in the overwhelming majority of cases.  This would suggest that, aside from the typical issues of configuration control, project stability, and rubber baselining, (aside from the self-reinforcing cost growth culture of the Agile Cult) that there are larger underlying causes involved than simply contracting systems, though they are probably a contributing factor.

From a hardware perspective in terms of military strategy there may be a very good reason why it doesn’t matter that certain systems are not deployed immediately.  That reason is that, once deployed, they are expensive to maintain logistically.  Logistics of deployed systems will compete for dollars that could be better spent in developing–but not deploying–new technologies.  The answer, of course, is somewhere in between.  You can’t use that notional jet fighter when you needed it half a world away yesterday.

c.  Where we can see the effects on behavior from an acquisition systems perspective is in the comparison of independent estimates to what is eventually negotiated.  For example, one military service recently gave the example of a program in which the confidential independent estimate was $2.1 billion.  The successful commercial contractor team, let’s call them Team A, whose proposal was deemed technically acceptable, made an offer at $1.2 billion while the unsuccessful contractor team, Team B, offered near the independent estimate.  Months later, thanks to constructive changes, the eventual cost of the contract will be at or slightly above the independent estimate based on an apples-to-apples comparison of the scope.  Thus it is apparent that Team A bought into the contract.  Apparently, honesty in proposal pricing isn’t always the best policy.

I have often been asked what the rationale could be for a contractor to “buy-in” particularly for such large programs involving so much money.  The answer, of course, is “it depends.”  Team A could have the technological lead in the systems being procured and were defending their territory, thus buying-in, even without constructive changes, was deemed to be worth the tradeoff.  Perhaps Team A was behind in the technologies involved and would use the contract as a means of financing their gap.  Team A could have an excess of personnel with technical skills that are complimentary to those needed for the effort but who are otherwise not employed within their core competency, so rather than lose them it was worth bidding at or near cost for the perceived effort.  These are, of course, the most charitable assumed rationales, though the ones that I have most often encountered.

The real question in this case would be how, even given the judgment of the technical assessment team, the contracting officer would keep a proposal so far below the independent estimate to fall within the competitive range?  If the government’s requirements are so vague that two experienced contracting teams can fall so far apart, it should be apparent that the solicitation either defective or the scope is not completely understood.

I think it is this question that leads us to the more interesting aspects of acquisition, program, and project management.  For one, I am certain that a large acquisition like the one described is highly visible and of import to the political system and elected officials.  In the face of such scrutiny it would have to be a procuring contacting officer (PCO) of great experience and internal fortitude, confident in their judgment, to reset the process after proposals had been received.

There is also pressure in contracting from influencers within the requiring organizations that are under pressure to deploy systems to meet their needs as expeditiously as possible–especially after a fairly lengthy set of activities that must occur prior to the issuance of a solicitation.  The development of a good set of requirements is a process that involves multiple stakeholders on highly technical issues is one that requires a great deal of coordination and development by a centralized authority.  Absent such guidance the method of approaching requirements can be defective from the start.  For example, does the requiring organization write a Statement of Work, a Performance Work Statement, or a Statement of Objectives?  Which is most appropriate contract type for the work being performed and the risk involved?  Should there be one overriding approach or a combination of approaches based on the subsystems that make up the entire system?

But even given all of these internal factors there are others that are unique to our own time.  I think it would be interesting to see how these factors have affected the conditions that everyone in our discipline deems to be problematic.  This includes the reduced diversity of the industrial and information verticals upon which the acquisition and logistics systems rely; the erosion of domestic sources of expertise, manufactured materials, and commodities; the underinvestment in training and personnel development and retention within government that undermines necessary expertise; specialization within the contracting profession that separates the stages of acquisition into stovepipes that undermines continuity and cohesiveness; the issuance of patent monopolies that stifle and restrict competition and innovation; and unproductive rent seeking behavior on the part of economic elites that undermine the effectiveness of R&D and production-centric companies.  Finally, this also includes those government policies instituted since the early 1980s that support these developments.

The importance of any of these cannot be understated but let’s take the issue of rent seeking that has caused the “financialization” of almost all aspects of economic life as it relates to what a contracting officer must face when acquiring systems.  Private sector R&D, which mostly fell in response to economic dislocations in the past–but in a downward trend since the late 1960s overall and especially since the mid 1980s–has fallen precipitously since the bursting of the housing bubble and resultant financial crisis in 2007 with no signs of recovery.  Sequestration and other austerity measures in FY 2015 will at the same time will also negatively impact public R&D, continuing the trend overall with no offset.  This fall in R&D has a direct impact on productivity and undercuts the effectiveness of using all of the tools at hand to find existing technologies to offset the ones that require full R&D.  This appears to have caused a rise in intrinsic risk in the economy as a whole for efforts of this type, and it is this underlying risk that we see at the micro and project management level.

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