Bidding Wars

Earlier this summer, Defense News ran an article that highlights the need for military transformation, especially in the area of procurement.

The story was about the Navy’s controversial decision to award a $3 billion contract for the next generation of warships, DD(X), to Northrop Grumman and Raytheon (the "Gold Team"). Following the contract announcement, the losing team of General Dynamics and Lockheed Martin (the "Blue Team"), filed a complaint with the General Accounting Office.

They’re not sore losers. They’re wronged losers.

Sore losers don’t last long in the defense world, where every major company simultaneously competes and partners with other big companies on major defense projects. Hence it is uncommon—in the world of defense contracting—for industry giants to call for an investigation of the contract award. This can infuriate the contract winner and, worse yet, the real customer, the Department of Defense.

It takes a wrong that’s not even a close call for the Blue Team companies to cause a stir. But from the evaluations of the two teams’ proposals this wasn’t even a close call – the "Blue Team" had the superior proposal. What happened?

In November, 2001, the Navy put the warship contract out for bid, and the two teams received strict guidelines as they prepared their proposals. Each team was evaluated on the usual criteria of cost, engineering, design and past performance, etc.

But as the Defense News article reports, the complaint filed by the Blue Team specifically calls into question the decisions made by those evaluating the contract bids for the DD(X). The article tells of evaluation grades being changed and senior naval officials out-and-out overriding the findings of more junior officials — an unprecedented move. In the news report, an ex-Navy official and former acquisition professional was quoted as saying he was "stunned" by the "unusual nature of the [board’s] recommendation."

The story gets even more intriguing.

Four months before the winning bid was announced, the Navy turned down the Blue Team’s request to use a decommissioned Navy ship for testing purposes. Therefore, it was not included in their final proposal. However, the Gold Team actually had this idea in their plan, and Navy leadership used it as an example of why the Gold Team bid was superior to the Blue Team.

The Navy evidently found the Gold Team’s design concepts for the DD(X) more attractive. Fair enough. But the Navy had stressed from the outset that they were more interested in the "concept" for the DD(X) and the ability to manage technology development, and not so much the design. Insiders know that by the time the first warship is commissioned, it will bear little resemblance to the design offered in the original contract. In this case the Navy was already planning to review and change requirements immediately after making the award.

Most important, by stressing a design point, the Navy seems to be highlighting the Gold Team’s style over the Blue Team’s well established superiority regarding integrated technology — a dangerous and unjustifiable vision for America’s next generation of sophisticated warships.

Given these questionable measures alone, the Blue Team acted responsibly by protesting the decision. But these are just two examples of a flawed process. Regrettably, there are even more. Firewalls may have been breached, past performance considerations ignored or skewed to the advantage of one team over the other, and, as some analysts believe, the Gold Team contract award had more to do with business implications rather than technical merit.

Regardless, the whole DD(X) program could now be at risk, endangering the future of the surface Navy.

For as the DD(X) contract is endlessly delayed by an extended, but clearly needed GAO investigation — as seems likely, at this point — this critical program will be plagued from the start with mandates, schedule delays and cost increases. The public and Congressional leaders will not be pleased, and the nation cannot be well served.

As America engages in the first global war of the new century, the military must transform itself, as Defense Secretary Donald Rumsfeld has proposed. With that must come a move to transform the procurement process. In the name of fairness alone, the Navy should take the initiative to rectify the DD(X) contract acquisition process. Most importantly, the Navy needs to take the necessary steps to assure our warfighters that they receive the best, safest and most sophisticated tools in the world to do their critical jobs.

Kenneth Adelman is a frequent guest commentator on Fox News, was assistant to U.S. Defense Secretary Donald Rumsfeld from 1975 to 1977 and, under President Ronald Reagan, U.N. ambassador and arms-control director. Mr. Adelman is now co-host of TechCentralStation.com.