Thursday, June 29, 2017

Why the program office? Thinking about Organizations

Why does DoD acquisition have a bunch of transient program offices, each of which often has a single prime contractor? What happened to organizations with persistence and culture? I'll provide a speculative taste below that is an excerpt from a much longer paper submitted to ICEAA (I'll post it when they put it up).

... 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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