Elliott Branch: Make Value Analysis & Modular IP Systems a Reality

Host Tim Templeton talks with Elliott Branch, former Deputy Assistant Secretary of the Navy for Acquisition and Procurement. Subjects on deck: how we can rethink contracting competition to integrate efficient tradeoffs, how value analysis can become integral to the acquisition process, and how both agencies and industry can modularize IP systems for the good of all.

See live discussions of Speed to Contract & Speed to Market topics at the Government Contract Pricing Summit in June. For information & registration, visit gcpsummit.com. 

Transcript

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Templeton:  

I am pleased to introduce our guest Elliott Branch. Mr. Branch is now the managing member of KJM Consulting LLC, where he provides acquisition advice and training to government and private sector organizations on acquisition matters. He recently retired after 34 years of federal service. 

His last position was Deputy Assistant Secretary of the Navy for Acquisition and Procurement in the Office of the Assistant Secretary of the Navy, which he assumed in June 2011. Mr. Branch served as the senior career civilian responsible for the acquisition and contracting policy that governs the operation of the Navy's worldwide multi-billion-dollar acquisition system. He was also the principal civilian advisor to the Navy Acquisition Executive for procurement matters and the Navy's Contracting Workforce community leader. He is a fellow of the National Academy of Public Administration and a fellow of the National Contract Management Association. 

Mr. Branch graduated with a Bachelor of Science in economics from the University of Pennsylvania Wharton School and completed the Executive Program at the University of Virginia, Darden School. He has received the Navy Distinguished Civilian Service medal, the David Packard Excellence in Acquisition Award, two Presidential Rank Awards for Emeritus Executive, the Vice-Presidential Hammer Award for Reinventing Government, and the 2012 Samuel J. Haman Service to America Medal for Management Excellence. 

Elliott, welcome to the podcast.



Branch:     

Tim, thank you. Thanks for having me this afternoon.

Templeton:  

Yes, I just love your background, Elliott. You are well-positioned as a big thinker based on the vast experience that you have gained throughout your career. You’re well-positioned to give us some insights on what we need to do to correct this serious problem. Because as you are aware, we have antiquated policies of budgeting and controls that are seen by many leaders as a national security problem for our country and our warfighters. So, the big question to start—and I know you think from different angles—from your point of view, where do we start to correct this problem?

Mr. Branch:     

Well, I think we start in a couple of different places. So let me just mention those, and then I'll go back and expand on them. So, we know that competition is effective in increasing quality and responsiveness by industry and reducing costs—or making costs as efficient as they can be. So, I think we have to take another look at competition. 

The other thing that I think we have to look at is why we have the structure that we have in place. And I think we've got to look at the reasons behind the process before we start tinkering with the process. So, those are the two places that I think we really need to look at. 

Let me go back to my first thought, which is competition.

RETHINK CONTRACT COMPETITION TO INTEGRATE TRADE-OFFS

Mr. Branch:     

We get money from The Hill in a very program-centric way, which makes it very hard for the department to make trade-offs, just as you might make a trade-off when you go into the grocery store, or you go into Home Depot. I think about those things all the time. 

I have a rule in my house, for example, when I'm buying wine to cook with, right? So, my rule, over long experience, is I'm not willing to cook with anything I'm not willing to drink because I just don't find that it works as well. So that's really kind of a best-value trade-off, right? I can either buy the high-end wine, or I can look for a substitute, an ingredient that adds the same kind of flavor.

I can make those trade-offs in my personal life. We don't get to make those trade-offs in the Department. If we get money to buy joint strike fighters or the latest F-16 variant, then we have to buy joint strike fighters or the latest F-16 variant. But not both. 

We don't get to sit down and say, depending on what industry wants for those on a per-unit basis, what would be the mix that we might have, just as we might consider when we go into the grocery store? Where we might buy a little less wine and a little more vermouth for cooking purposes. 

So, I think we have to look at competition, and competition can't just be looked at in a straight-up way.

Another very good example is we've got several kinds of tablets on the market. You can get an iPad, you can get an Android tablet, or you can get a Chromebook. They're not exactly the same, but if we could make those tradeoffs, I think we could put ourselves in a position where we don't have to rely on the system to produce that data. 

THE SYSTEM SHOULD EFFICIENTLY  CORRECT FOR INFORMATION ASYMMETRY

Mr. Branch: 

The second thought that I have here is: The system is in place for a reason, and if you look at the Truth in Negotiations Act, which is what drives much of this, it's there to correct an information asymmetry, right? And I just look at that very simply in baseball terms. If I could figure out what makes Juan Soto the prodigious hitter he is—that we at Washington foolishly traded away to you all in San Diego—then what would I do?

I would simply document that. And then I would go to class AA baseball, and I would take an average middling hitter, and I would give him a hitting coach, and I would give them both the Juan Soto book on how to become a great hitter. And I would simply train great hitters, but I can't do that for obvious reasons. So, industry has secret sauce. I understand that they need to protect it, that's intellectual property.  It is not just designs, but it's also their business process. But I also understand that we have to guard against industry being able to exploit those things to the detriment of the taxpayer. So, we put things like certified cost and pricing data in place to correct the information asymmetry that industry has over us.

And I'm concerned that we keep chipping away at those things in the interest of streamlining because what we'll eventually wind up with is a very mild and ineffective way to correct that information asymmetry. I would argue that we need to figure out how to get at the assumptions behind the process. 

VALUE ANALYSIS CAN BECOME PART OF THE CONTRACTING BUSINESS 

Mr. Branch:

So, a couple of thoughts, and I'll just throw them out here. One is value analysis, right? We've talked about that, and we've never really defined it. And I think we have to do some real work on value analysis because there are some things—we see this in the Russian and Ukrainian conflict— that we would pay a significant amount for, regardless of what it costs to make those things, to acquire a capability. I'm pretty sure that as things started in the conflict there, the Ukrainians didn't sit down and ask the Turks about what their indirect rates were and what their DNA rates were.

They're saying, “We've got an existential threat on our hands. We don't own the skies.  Do you have some technology that can help us redress that balance? And we're willing to pay, from a public policy perspective, what we think that's worth.” So, I think we can move more to value analysis in some of these areas. 

MODULARIZE IP ANALYSIS FOR THE GOOD OF BOTH INDUSTRY & AGENCIES 

Mr. Branch:

The other thing that I think we can do is we can look at these systems while protecting the intellectual capital that Primes have invested in these systems. We can modularize them. So, we are providing, if you will, a standard output, in an industry-standard way. We have an example of that in the submarine force from years ago when the Soviet Union fell; there was a sense that we did not need to continue to grow the capability of our submarine combat systems.

This was in the early to mid-90s. And the people who were in that space vehemently disagreed.  But the people who control the money said, “We have other priorities for the money.” So, what they did was they essentially had a conversation with the leaders in that particular market segment, and they said, “We need you to do some different things. And what we're going to do is we're going to modularize the product we buy from you; we're going to put in middleware, we're going to make sure that we get standard outputs, in a particular form. And what we need you to do is to help us identify those breakthrough technologies and those emerging technologies that can plug into those standards so that we can spread that work.”

And what it amounted to was room for both the Primes, albeit in a different role, as well as emerging technologies from the sector. Because what they did primarily was they stopped using purpose-built computers, which combat systems had used for years, and they started to use standard off-the-shelf computer equipment, the same Intel solution that we're using to have this conversation today, or close. So I think there are some things that we can do, but I'm not sure that simply, if you will, taking the current process and trying to modify it is the right way to go. 

Templeton:  

What we're talking about here, Elliott goes back to this project that you were involved with earlier in the Navy of creating middleware, of actually getting the Primes to move differently. That's thinking way up at the top. That's changing the business process that was the accepted business process of the day. And that took a big initiative, I'm sure, from not only your team, your organization's side, but also from the Prime that you were working with. How long did it take to accomplish that? Because what we're talking about is creating a team here to actually go up, think big, then bring it down on the tarmac to actually identify some effective changes that we could do in the short term as well as have long-term goals.

MAKING PATH-DEPENDENT DECISIONS ABOUT GOVERNMENT TECH

Mr. Branch:     

Well, it took quite some time. And let me speak to the issue because I think it's one of the things that we don't think about when we think about resistance to change, right? So, every decision that we make in a highly technological space is what eCommerce will call a path-dependent decision, right? 

So, this idea of purpose-built computers, right? So, I've created an industrial base for them. I've created a supply chain for them, and there's revenue flying into that supply chain. I've created engineers that have a facility for that. I've created plant equipment that knows how to do that in a very optimal way. And then somebody walks in and says, “Hey guys, we can use the same chips that go into your PC computer.”

And if we were just clever with our software, we can do the same thing. And that leads to a problem called stranded assets. Because I've built all this capital up, I've made a decision, right? To educate people in a certain way, build facilities in a certain way, configure the supply chain in a certain way—then people are going to say, “Wait a minute, what now happens to my investment?”

I think the larger question to ask here is, “If you don't change, given that the world is going to change around you, what happens to your investment?” So, I think we got to a point of equilibrium. Where industry and the Navy decided that the consequence of not changing was  a much greater, much more adverse consequence than the consequence of abandoning the way it did business. And I think that's human nature, and we've really got to spend some time talking, not necessarily at the high level, but at the grassroots level on, “Ok, so what happens if we don't change?”

Templeton:  

Hmm. In thinking about this, obviously, the one thing that's important that you've identified here is bringing all stakeholders to the table and having the discussion. I just think about the CEO sitting in the room if this is sprung on him. They have a board meeting coming up to make their numbers for the next quarter, or to make their annual numbers, and all of a sudden, a wrench comes into the machinery short-term that's going to take that out of whack. 

Of course, there's going to be resistance, but you started well in advance of that, having them come to the table to understand what the problem is and actually having them bring their input back into how to affect change, what they could live with, and still move forward with the new business model.

Mr. Branch:     

Yes. And to be frank, it wasn't all roses, in the sense that some people decided to exit that particular segment of the business. And there were some mergers and acquisitions that took place. So that business looks very different than it did in the early to mid-nineties. But I think having that conversation gave the industry and the Navy an opportunity to reflect on the implications of that change. And it allowed some folks to make decisions. And, as I said, they weren't immediate decisions. I mean, if you think about the kinds of decisions that can result in a dramatic change in circumstances, what you might call a swift transition.

If you go back to the credit crisis of 2008, there were certain companies that ceased to exist—like Lehman Brothers. But I would argue, as tragic as that was, that stemmed from perhaps an unwillingness in that particular market to sit down and ask, “How is this market changing? What are we doing in terms of making sure that the fundamental underpinnings of the way we do business are sound?” And because people didn't want to make those kinds of decisions, people didn't want to reflect on that. What happened was they were making their numbers until they weren't. And when they weren't, they weren't very quickly. And it was a very, very drastic outcome. I don't think we as a country want to get into that position with our national defense.

Templeton:  

Yes. Agreed. So as you have laid out, the thinking and the process starts at a very high level. It’s not jumping in the middle and trying to make these systemic changes by chipping away at the current system. But really start the discussion at the top in regards to change, then bring it down to the grassroots. And solutions are identified and then presented. You've got an interesting thought process on how you frame things and the problem of framing. Unpack that and how that's worked for you and against you throughout your career.

NEVER CONFUSE THE FACTS WITH THE TRUTH

Mr. Branch:     

Well, I think framing is critical. My son and I have had this conversation about history books. He has said, “Dad, do you really believe what's in that history book?” And my answer to him was, “You know, never confuse the facts with the truth. And I think that while we may have the same facts, the truth is a matter of framing.” And just as an example, if you are ill, you go in to see your internal medicine specialist, and he says, “You know, Tim, you're ill, but no worries. We have a procedure, there's a medical procedure, and we can address your problem. But I have to be honest with you; there's a 10% chance that you might not survive that procedure.”

Well, you think, “Ten percent? That's horrible.” So, his colleague from whom you solicit a second opinion comes in and he says, “Well, Tim, I looked at Dr. Smith's case file, and I've looked at your X-rays and I have really good news for you. We have a procedure that can address that problem, and there's a 90% chance that you'll survive.” So, the facts are the same, nine out of 10 times in both those cases, you are going to survive, whatever this procedure is. But because we have framed it in a certain way, you look at it differently. So, I think framing is very important in how we consider potential future realities.

Templeton:  

Well, at the end of the day, as we start to bring this recording to an end, this is obviously a national security issue, right? Speed to contract, speed to market. And in your words, we certainly don't want to get into a position where the emergency is on us, and we're not prepared going forward—for the threat that's being spoken about in 2027. 

And as we look at this global conflict that we're in right now, where information and technology and speed and communication are real-time compared to what they used to be, we need to take some next steps. But from your point of view, we need to take it at a high level but also understand what the key issues are of going through that change. Number one, competition as you talked about, and who those players would be, but specifically value analysis and digging into the details of what this really means to change the overall system before we can offer up specific solutions going forward. 

With that thought, Elliot, what would be some of the final encouragements of where we're at right now, which would be the next steps going forward to really get focused on, so that in six, eight months, we could be back on The Hill with a team of people that are passionate about this topic, to present something that would affect change in this important area?

REVISIT PAST PANELS &  IMPLEMENT THEIR INNOVATIONS 

Mr. Branch:     

We moved through this a few years ago. We had a congressionally mandated panel, Section 809 panel, which took a look at streamlining the acquisition system. And the first thing that I think is, we need to go back and revisit the work they did. We did implement some of that, but frankly, this is the nature of our politics: The folks that were keenly interested in doing that work, Senator McCain, and his staff, weren't there when the panel finished their work. And the folks that were had different priorities at the time. I think there are things on the table from that work.

There are also likely things on the table going all the way back to the Packard Commission. If we just did a literature review and said, “You know, some of these ideas have been around for a while, which ones are the ones we ought to be focused on?” Now, I'm not sure we need a panel to start over again. We've had panels start over again several times. It may be a good idea to actually go back and look at some of the things that we've not implemented. 

And I'll give you an analogy. I won't say I'm a golfer, but I do own a set of clubs and I like to tinker with the game.

And there are many of what I call science experiments in my house. So there are clubs not in my bag that at one point in my game, I thought might be useful. And occasionally I'll go revisit that second bag and I'll say, “This is what's going on with my swing, or these are the courses I'm playing. Are there clubs in that bag I can now pull out that'll be more effective than the clubs I have in my bag?” So, for example, it's turning to fall here in Northern Virginia. You've got a lot of leaves; you got a lot of gnarly rock. So my five wood is back in the science experiment bag. And my three hybrid is in my playing bag because I just looked at it and said, “Hey, circumstances have changed on my home course.” I need a different set of tools. 

You know, we've done studies over the last 50 years or more on all of the tools we might bring to bear. Why don't we just go back into the science experiment bag and see if maybe some of those tools are useful? We can do that in the short term.

The other thing that we can do is we can start to have a conversation. And I think we need to have it at a national security level—about how we align the business process with the national security environment needs and our needs. And I don't think we've ever done that, so I look at it this way:  If you are moving toward more off-the-shelf technology, if you're moving into a more multipolar world, if you're moving into a world where people like the Chinese perhaps have secured favor, more privileged access to things like rare earth metals and other things, what do you need to do to stay secure? 

SHOULD COMPETITION BE REIMAGINED—OR DESIRED BUT NOT PREFERRED? 

Mr. Branch:

What is it that you need to really focus on to maintain a national security advantage? And how must the business system then support that? I'll throw a very controversial idea out there. Maybe we're at a place where competition as we understand it should be revised or reimagined. And maybe we're at a place where competition should be desired but not preferred. You know, had we been in that kind of a situation—and I know this is heresy to my contracting friends—we might have been able to go tap the commercial marketplace more easily, right?

Templeton:  

Mm-hmm. Well, these are big ideas, and a couple of thoughts in response. Number one, I would look forward to having you help out, to go back in and look into the science bag of the work that's been done so that we could do that reading assignment. And I would personally love to be able to review some of that documentation. I know that you have access to it and have a deep understanding of it. So that's number one and I think it is fantastic. The other thought is in terms of the science golf bag, my 60-degree wedge is still in my science bag because I haven't figured out my swing.

Mr. Branch:     

<laugh>

Templeton: 

 And I'll give you a call and we’ll go out and play 18 together.

Mr. Branch:     

Well, that's fair. But you raise a point. So, I'll leave you with one golf story before we go. So, I have a 60-degree wedge in my bag, but it's a different 60-degree wedge than was there 18 months ago. And, what I figured out was I needed a way to get out of this hard-packed sand in Northern Virginia.

So sometimes you play fluffy lies, sometimes you play really hard lies. So, my 54-degree has I think 10 degrees of bounce on it, or 11 degrees or 12 degrees of bounce. My 60 only has five. So, it's also about using the right tool for the right job. And, I had a lot easier time getting out of bunkers than when I had two wedges with 12 degrees of bounce on them.

Templeton:  

Yes. Well said. And very applicable to not only my game of golf, but also the problem that we face. Elliott, thank you so much for your insights. I've enjoyed the time. I know that our listeners have as well. Thanks again.

Mr. Branch:     

My pleasure. Thanks for having me, Tim.