In support of U.S. Department of Defense (DoD) efforts to improve mission effectiveness and efficiency, this report identifies DoD government functions for procurement and acquisition, estimating their costs at between $29 billion and $38 billion. As a percentage of DoD contracting obligations, the program management portion of these costs have been about 1.5 percent, which is below industry benchmarks of 2 to 15 percent.
- What functions constitute the government portion of the DoD's acquisition enterprise?
- What are the costs of executing these functions, how are the costs trending, and can we benchmark these costs to help see if they are too low or too high?
The U.S. Department of Defense (DoD) aims to improve mission effectiveness and efficiency. In support of this effort, the Office of the Secretary of Defense asked the National Defense Research Institute (NDRI), a federally funded research and development center operated by the RAND Corporation, to construct a baseline of the DoD's government acquisition and procurement functions, including a functional decomposition and estimate of the cost of executing the government portion of the DoD's acquisition enterprise. NDRI researchers estimated these costs at between $29 billion and $38 billion in fiscal year 2017 dollars. To gain perspective on these costs, NDRI researchers identified commercial benchmarks for the amount of program management levels. As a percentage of DoD contracting obligations, NDRI researchers estimated the DoD's program management portion of these costs at about 1.5 percent in the last few years, which is below industry benchmarks of 2–15 percent.
- A functional decomposition of DoD acquisition and procurement (broadly defined) is developed as a baseline taxonomy for understanding the DoD's government functions in acquisition and procurement.
- Determining the cost of executing this baseline is challenging because existing accounting and labor-tracking systems are not aligned consistently to isolate and identify all acquisition work.
- Using a workforce-based estimation approach, NDRI researchers estimate the cost of executing the government portion of the DoD's acquisition enterprise estimating at between $29 billion and $38 billion in fiscal year (FY) 2017. Between FY 2008 and FY 2017, the uncertainty bounds for these costs ranged from a high of about $42 billion in FY 2011 to a low of about $28 billion in FY 2008.
- As a percentage of DoD contracting obligations, NDRI researchers estimated the DoD's program management portion of these costs at about 1.5 percent in the last few years—below industry benchmarks of 2–15 percent. Thus, the amount of program management (including support contractors) appears to be reasonable and perhaps too low to maximize the performance of defense acquisition.
- As a function of contracting transactions (contract awards and modifications), total acquisition workforce costs from FY 2008 to FY 2014 increased from $20,000 to $24,000—about 20 percent. Trends were similar when examining just the contracting workforce costs against transactions ($3,600 to $4,300). However, transaction reporting criteria apparently changed between FY 2014 and FY 2015 with a commensurate jump in transactions numbers, so trends are harder to interpret but seem to have flattened.
- Given a cost estimate for the baseline, the challenge is determining whether those costs are reasonable and beneficial (i.e., it is not absolute costs that matter but rather the benefits that ensue from those investments). Further research could be conducted to examine these cost-benefit relationships. For example, research could examine multiple outputs and outcomes that result from investments in acquisition and procurement functions while searching for productivity and efficiency measures.
- More analysis is needed, but it may indicate that the DoD's and Congress's investments in increasing the size and quality of the acquisition workforce may be showing measurable benefits. For example, many (but not all) of the DoD's published performance indicators for major defense acquisition programs show recent reductions in cost growth in major defense acquisition programs. While these savings and cost avoidances may be unrelated to some degree, they may be much larger than workforce cost increases.
Table of Contents
Baselining Defense Acquisition and Procurement
Estimating Baseline Costs
Acquisition Baseline Definitions