... The
transfer of weapon systems expenditures to organizations external to the
Defense Department brought issues of contracting to the fore. When the actual
operations of doing experiments or bending metal occur in-house, the executive
may act very much like a military commander in the field. He can express his
desires, or lay out his “demand function,” and command action be taken.
Depending on how he judges the resulting action when compared with his updated
expectations, the executive or commander can reward or punish his subordinates.
This method of administrative control is often called after-the-fact control. However, when defense executives seek
production from the open market, whether it be firms, universities, or
non-profits, they must use market exchange mechanisms characterized by
contracts. A contract essentially seeks voluntary agreement between two or more
parties where the exact responsibilities of each party and methods for
evaluation are detailed before action is taken. A similar method of
administrative control is wielded by the controller using program budgets. Both
contracts and program budgets use the method of before-the-fact control. Professor Thompson compared the two
methods with respect to internal administration:
“[Before-the-fact]
controls necessarily take the form of authoritative mandates, rules, or regulations
that specify what the subject must do, may do, or must not do. The subjects of
before-the-fact controls are held responsible for complying with these commands
and the controller attempts to monitor and enforce compliance with them.
“After-the-fact
controls are executed after the subject, either an organization or an
individual, decides on and carries out a course of action and, therefore, after
some of the consequences of the subject's decisions are known.”[1]
The congruence between the
methods of contracting and program budgeting made the two natural bedfellows,
the enabler being the unifunctional project office structure. The program
budget demands that organizations find perfect alignment with program
structure, which Mosher had showed impossible for any significant organization.
These forces, coupled with an expressed desire for private production, led the
Air Force to favor the systems project office and a single prime contractor.
For the pre-existing Army and Navy organizations to be viable, there needed to exist
an auditable accrual accounting system by program. Without such an accounting
system, the policy maker could not effectively monitor execution to plan; nor
could the policy maker forecast future plans. Though Congress mandated such an
accrual accounting system in 1955, it was never accomplished.[2]
Thus, the move toward unifunctional project offices can be seen as a means of
outsourcing accounting compliance as well as production knowledge to industry. Control
through the program budget would otherwise require multifunctional in-house
organizations to perform such accounting themselves.
[1]
Thompson, Fred. “Public Economics and Public Administration.”
http://www.willamette.edu/~fthompso/ECON&PA.html.
[2]
Lander, Ezra. “Performance Budgeting and Accounting Policy in the Department of
the Army.” The American University, Ph.D., 1961, pp. 242. Accrual accounting
was first emphasized to the Congress in the Second Hoover Commission of 1955,
but its need was understood much earlier. Despite repeated mandates, an
auditable accrual accounting system remains years away in the Department of
Defense.
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