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Acquisition Reform The DARPA Approach Richard L. Dunn General Counsel DARPA


Preliminary Comments on Acquisition Reform The Incremental Approach: “Freedom is very precious that it must be rationed.” V.I. Lenin The DARPA Approach: “It’s a revolution, somebody’s bound to be offended.” John Adams, 1776

Why Not Do Business Like Everybody Else?: 

Why Not Do Business Like Everybody Else? Evolution of the Defense Industry History of DARPA Business Practices Special Legal Authorities Key Issues Dual-Use Partnering Others Examples

Evolution of the Defense Industry: 

Evolution of the Defense Industry World War II Technological Surprise Jet Aircraft Cruise Missile Ballistic Missile Guided Anti-ship Missile Cold War Imperatives U.S.S.R. Possessed Nuclear Weapons U.S.S.R. and China - Conventional Numerical Superiority

Evolution of the Defense Industry: 

Evolution of the Defense Industry Distinct Defense Industry was originally shaped by technology needs Distinct Defense Industry exists today primarily because of Government imposed business practices Defense Industry is consolidating, becoming bulkier and more in-bred


The Post-Cold War Era Civilian technology is more advanced than military technology Innovative civilian products are introduced rapidly Price of computing power declines rapidly Civilian firms with R&D budgets don’t do business with DoD “Partnering” is becoming more common - MCC, SEMATECH, National Cooperative Research Act Information Technology is the cornerstone of the “Revolution in Military Affairs”


History of DARPA Business Practices 1958 ARPA created $500M budget (= $2.5 B in FY96) begins operations immediately ARPA Order/Agent System Mission Priority - space 1960 Missile defense replaces space as ARPA’s big program ARPA diversifies 1963 ARPA begins pushing computer technology on a broad front rather than with a narrow military focus (forerunner of “dual-use” approach) 1970 Mansfield Amendment (military relevance)


History of DARPA Business Practices 1975 HAVE BLUE (Stealth) and other “black” programs contrast normal and streamlined acquisition 1984 CICA -- Broad Agency Announcements 1986 Packard Commission (prototyping) 1987 DARPA Organizes in response to Packard Prototype Projects Office Contracts Management Office General Counsel 1982 SBIR Program (continued)


History of DARPA Business Practices (continued) 1990 First DARPA “other transaction” non-procurement agreement 1991-2 “Consortia” funding added to DARPA budget 1993 Technology Reinvestment Project 1994 Non-procurement prototype projects - Globalhawk 1996 Arsenal Ship 1997 Commercial Operations and Support Savings Initiative 1999 Submarine Payloads and Sensors Programs


Special DARPA Legal Authority 10 U.S.C. 2371 (enacted 1989, amended several times) authorizes “other transactions” for research and development equal cost sharing if “practicable” procurement contract, grant not feasible/appropriate Sec. 845, Public Law 103-160 (Prototypes) authorizes “other transactions” for military prototypes cost sharing not required even if procurement contract is feasible/appropriate


DARPA Funding Mechanisms Procurement Contract Solicitation - RFP/BAA Type - CPFF Recipient - Any organization Grant Solicitation - BAA Type - typically fixed sum Recipient - typically university/non-profit “Other Transaction” Solicitation - BAA/RA Type - Milestone payments Recipient - typically consortium or commercial firm


DARPA Funding Mechanism Sec 845 Prototype Agreement Solicitation - Program Solicitation Type - CPFF, CPIF, milestone payments Recipient - typically consortium or defense contractor


Dual-Use Implications of Funding Mechanisms Useful/Commercializable Technology Capital Business/Technology “Champions” Market Demand These elements combined in the Technology Developer optimize the opportunity for Technology Implementation Dual-use Strategy


Impediments to Commercial Utilization Government Support Mechanism Procurement Contract (Industry) Grant (University) In-house (Lab) Consortia/Partnership (10 U.S.C. 2371) Flexible Agreement (10 U.S.C. 2371) Primary Commercialization Mechanism IPR provisions in contract IPR provisions - license to industry - new start-up company License to industry CRADA Goal of relationship is mission support plus commercialization Goal of relationship is mission support plus commercialization Impediments Impediments caused by market separation Forced Tech Transfer Forced Tech Transfer Potential to address all elements vital to commercialization Potential to address all elements vital to commercialization


The Kind of Alliance You Want to Form Depends on Your Strategic Directions Joint Marketing Agreement Value Added Resellers Producer-Distributor Alliances Purchaser-Supplier Alliances Economies-of-Scale Alliances Collaborative Marketing Agreements Procurement-Supplier Alliances Joint Manufacturing R&D/Commercialization Ventures New Process & Product Development Technology Development University/Industry Joint Research Division of Risk Alliances Spin-Off Alliances Systems Integration Retail Franchising Cross-Licensing Marketing & Sales Alliances Technology & Know-How Alliances Product & Manufacturing Alliances


Characteristics of a Winning Consortium 1. Critical Driving Forces 2. Real Business Opportunity 3. Strategic Synergy 4. Excellent Chemistry 5. Win/Win 6. Concrete Results 7. Sharp Focus 8. Commitment & Support


Relationships - “Partnership” vice primes and subs Intellectual Property - Minimal government rights may be appropriate Payments - Milestones versus cost-reimbursement Accounting and Audits - No DCAA, Commercial Standards Regulations - Virtually none apply, freedom of contract Key areas where flexibility has been exercised in “other transactions” Breaking the Mold


Examples of “Other Transactions”


DARPA Lead Company Commercial Company Commercial Company Commercial Company Commercial Company Small Business University Co-Funding & Management R&D Performance R&D Performance Agreement


Bank Account Integrating Sub-Contractor ($) Funding Sources and Overall Management (funds pass through - no burden) Administration (fee for service - no burden) R&D Performance Teams Materials Manufacturer UNIVERSITY Materials Manufacturer Small R&D Company Materials Manufacturer UNIVERSITY Joint Funding Agreement Jet Engine Manufacturers (7 Companies)


Bailment of Equipment Possible Purchase DARPA Non-Profit Developer Commercial Partner Capital $ $ Joint Venture (maintain & upgrades equipment, markets product) Product Customer Base (most favorable terms) IFSARE Commercialization Commercial Imagery U.S. Government U.S. Government Private Private Foreign


Globalhawk and Darkstar Arsenal Ship COSSI Others Prototype Projects (Sec. 845)


What is a Prototype? Transition to production “Contract” Type Cost Sharing? (IR&D) Old dog, new tricks? Section 845 Issues


DARPA Initiatives have reformed the front end of the Acquisition Process (S&T) Section 845 Prototyping is in the process of reforming the Development and Testing Process Authority to go into production under the “freedom of contract” approach is lacking Acquisition Reform - Cradle to Grave


DARPA is interested in affordable world class technology Innovative relationships and business practices may be key to affordability DARPA doesn’t have all the answers We need your good ideas! The Challenge

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