PPBE’s negative impact on innovation also extends to contracting

Here’s a slice from my new article in the May 2022 edition of NCMA’s Contract Management Magazine, How Defense Budgeting Stymies Innovation (gated).

Iteration and modularity of design are antithetical to PPBE. As budget scholar Allen Schick observed, “The environment of choice under traditional circumstances is incremental; in PPBE it is teletic.” Teletic planning starts with the ultimate end, goal, or objective in mind. It requires specifying alternative solutions to the problem and then fully predicting the lifecycle costs and measures of effectiveness to choose the optimal course of action… The fundamental target of PPBE reform should be the program of record concept, for without it there is no PPBE.

 

The alternative to a program of record is a portfolio. For example, aggregating program elements into more meaningful categories allows mission-driven organizations to exercise portfolio management. Such flexibility reflects the wisdom found in traditional methods of financial control dominant in the United States up through the 1950s.

Many thanks to the excellent Anne Laurent for the invite and edits! Be sure to check out her acquisition innovators newsletter. Here’s a good quote from Mike Brown at a Mason GovCon event on this idea of incremental vs. teletic planning:

Private industry, as many of us know, would never undertake an exercise where you’d spend 20 years on a design like we did with F-35, and think you’re going to predict what technology is going to be available, or even what problems you’re trying to solve. You’d be laughed out of every boardroom in the country if you propose such an idea. Only in defense would we consider that we have the hubris to be able to [forecast] that.

OK, so what is PPBE doing in Contract Management Magazine? Besides the PPBE Reform commission getting underway, the point was to discuss a few ways that the overarching governance and resource allocation methods have downstream effects on the contract process, including the areas of agile work statements, modular contracting, market research, and program execution. Here’s a bit on execution:

A major constraint on the contract process comes from overly detailed budget accounts. Contract obligations must meet the programmatic description requested in support of appropriations or risk an Anti-Deficiency Act violation.

 

The sheer number of program elements that control the activities under a contract has dramatically increased. Prior to the program element structure of budgeting, the fiscal 1963 Research, Development, Test & Evaluation (RDT&E) budget request had only 26 line items. By contrast, the fiscal 2022 RDT&E request had a whopping 920 unclassified program elements, the median amount being just $30 million. These budget lines are highly volatile as they make their way through Congress, making it difficult for program and contracting officials to do early planning, particularly for new starts, when they don’t know whether money will be available.

 

The fact that funds are locked into such tightly defined program elements means contracting officers face great pressure to award contracts before funding expires (one year for operations & maintenance, two years for RDT&E, and three years for procurement, except ships, which have five years to obligation).

 

Moreover, execution rates are established on a monthly basis. For example, 22.5% of RDT&E funds are supposed to be obligated within the first quarter of the fiscal year. If the program under-executes, then funding can be adversely affected in the future. By contrast, if funding were tied to broader portfolios, then dollars slated for a contract with an award delayed due to a protest could be reprioritized to a much wider array of activities to balance execution rates and avoid the rush at the end of the fiscal year.