Assessing Defense Procurement Policies

Abstract

Defense systems are typically over budget and behind schedule, and they often fail to meet performance specifications despite incentive schemes. Our study shows that these schemes are ineffective primarily because they assume (1) that a contractor's sole criterion is maximizing profit on a contract, and (2) that a single decision maker determines criteria that do not change in the course of system development. In fact, defense contractors have many different criteria, and their relative importance often changes with time. We have developed a dynamic computer simulation model that accounts for all the major motivations of the defense contractor, some of which are unrelated to any particular contract. It considers how the con tractor interacts, at both the corporate and the project-manager levels, with decision makers at the U.S. Department of Defense (DOD). The model is a relatively new type called a decision process model. A special feature of the model is that the user can modify the corporate-level and project-level goals of the contractor to better meet DOD goals as stated in the contract. The model can help planners assess the impact of alternative DOD incentive schemes and procurement policies on the per formance of defense contractors. The model is currently in the third stage of valida tion (statistical and sensitivity analysis). It has already yielded a few tentative results, most of which are strongly supported by field interviews with DOD and defense contractor personnel.