This document contains the final report of the DSB study on Defense Acquisition Reform (Phase II). The Phase I report firmly acknowledged the need to adopt commercial practices as a way of doing business, and developed a set of reform initiatives designed to accelerate the required changes. The thrust of the Phase II effort was to further define these areas by examining specific industry segments, identifying specific combatant commands for increase responsibility in the requirements process, and further identification of the barriers to the adoption of commercial practices. The Task Force concludes that: mature jet engines, microelectronics, software, and space systems can and should be procured and supported in a fully commercial environment; USACOM and CENTCOM should be given increased technical cadres to further their capability to participate in the requirements process; and it is feasible to eliminate may of the barriers to adoption of commercial practices without sacrificing the public trust in spending public funds.

The current defense environment is such that acquisition budgets are low and likely to remain so, weapons system costs are high and rising, the traditional defense industrial base is steadily shrinking in both size and number of participants and military threats around the world are unpredictable and varied. Nevertheless, there are still compelling reasons to invest in force modernization and in affordable defense systems featuring technological superiority. In order to make this possible, more efficient use must be made of acquisition resources. A new weapons research and development process is required, able to supply effective hardware in small quantities, producible and supportable at affordable cost, with reduced cycle times. As an integral feature of the new process use must be made of world-class commercial suppliers. The advanced technology and efficiencies typical of commercial operations must be incorporated into the development process. In changing to and implementing the new system, the public trust must be retained throughout. Figures 1 and 2 illustrate this background to the DoD acquisition reform effort.

This report provides three policy recommendations, based on the overarching theme of more closely integrating DoD with industry. The Sub-Panel believes that improved integration with industry is the critical element that will enable the acquisition system to perform better, faster, and cheaper in support of the warfighter. The recommended policy initiatives are that DoD should: 1. Restructure its Research, Development, Test, and Evaluation (RDT & E) organizations and associated workforce to enable the Department to make better use of the capabilities of industry and other government agencies, to concentrate in-house capabilities in areas where there is no external capability, and to eliminate duplicative capabilities. 2 Expand the use of price-based forms of contracting to reduce the cost of doing business with Department of Defense (DoD) for existing Defense contractors and to give DoD access the segments of industry that currently choose not to do business with the Department because of the costs and complexities associated with cost-based contracts. 3. Expand the oursourcing of sustainment activities to eliminate duplicative capabilities between DoD and industry, to enable the Department to capitalize on industry's advancements in applying technology to these functions, and to provide better support to the user.