Holding the Edge: Maintaining the Defense Technology Base

Chapter 5

The Management of DefenseDepartment Laboratories

CONTENTSPageINTRODUCTION ....... + . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

63GOVERNMENT-OWNED , GOVERNMENT-OPERATED LABORATORIES . . . . . . . . 64. . . . . . . . . . . . . .

Justifications for In-house Work . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .., ., .. ... 64Personnel Management. ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67Laboratory Management Issues: Funding. .. .. ... ... 72

GOVERNMENT-OWNED, CIBTRACTOR-OPERATED FACILITIES:AN ALTERNATIVE MODEL . . . . . . . . .... . . . . . . . . . . . . . . . . . . . . . . . . . 74

.,...,. . . . . . . . . ,,. 74The GOCO Relationship at the Department of Energy: Contractual Arrangements . . . 75 . . . . . . . . . . . .

The GOCO Relationship at the Department of Energy: Complying WithFederal Norms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . 76. . . . . . . . . . . . . . . . . .

78S U M M A R Y A N D C O N C L U S I O N S .. .. .. .. .. .. .. .. .. ... ..... : 80

Chapter 5

The Management of Defense Department Laboratories

INTRODUCTION

Three problems—personnel, funding, and size—hinder virtually all of the laboratories operated byDepartment of Defense (DoD) employees in per-forming inherently governmental functions, actingas smart buyers, and incubating new concepts. Thegovernment’s personnel system is too rigid becauseit makes it difficult for laboratories to compete withthe private sector for professional staff, because payscales are inflexible, and because of the obstacles itsets to rewarding performance. The laboratories findit difficult to get funds as and when they need them:They must spend their funds within the 12-monthbudgetary cycle, and they have limited authority tomove money between accounts, approve start-ups,and target discretionary money to building theirtechnology base. Finally, most labs often cannotdeploy a critical mass of scientists and engineers intonew areas that may be vital to the lab’s mission.

Alternative models to the government-owned,government-operated laboratory exist, for examplethe facilities operated under contract to the Depart-ment of Energy (DOE). Such models have certaincommon features. They operate under the contrac-tor’s own management systems. Their personnelsystems enable them to compete on almost equalterms with universities and industry for scientistsand engineers. Their funds are often available untilspent. And they have the size and depth of expertiseto work in the various disciplines needed fortechnology development.

The question that DoD and its technical managersconfront is whether to continue the current system orto restructure the laboratories. As grave as the labs’problems are, conversion to government-owned,contractor-operated facilities (GOCO) may not bethe answer. A conversion to GOCO could improvethe laboratory’s operations in the short term, whileleaving its basic problems unchanged. No institu-tional approach can be divorced from the ends theinstitution is supposed to serve. The military Serv-ices must first decide what purposes their laborato-

ries serve before taking the next step of alteringlong-standing institutional arrangements.

This chapter describes, compares, and contraststhe basic management arrangements of DoD’sgovernment-owned and -operated laboratories withthose of comparable facilities, whether government-owned and contractor-operated or federally fundedresearch and development centers (FFRDCs). It alsoraises a fundamental question: Why does the govern-ment in general, and the DoD in particular, need todevelop technology through its own laboratories?

The problems of DoD’s in-house laboratories arewell documented. The next, and more difficult, taskis to take the argument a step further: to considersome alternative approaches to technology develop-ment. The Defense Science Board (DSB) did this inits 1987 summer study, recommending that undercarefully specified conditions some labs considerconverting to a GOCO model But the costs andbenefits must be carefully weighed. After ail, aGOCO military lab would still be dealing with thesame sponsor whose rigidity prompted the conver-sion in the first place. Additionally, no government-funded institution can escape oversight merely byconverting to contract. The reason is simple: Whe-ther government-operated or GOCO, operating fundsultimately derive from congressional appropria-tions, and Congress holds the senior officials of thesponsoring agencies accountable for their properuse.

Beginning with a look at the roles of in-housemilitary laboratories, this chapter explores the sys-temic problems they face in getting work done—problems of personnel management and develop-ment, starting and completing work, relations withthe sponsoring agency, and the like. The discussionthen turns to an alternative model, the multiprogramlaboratories operated under contract to the DOE.The DOE national laboratories merit close study,first, because the relations between what is nowDOE and its contractors have endured over fourdecades; second, because these labs seem to have the“critical mass” needed to bring very large technol-

IDefense Science Board, “Report of the Defense Science Board 1987 Summer Study on Technology Base Management, ” Washington, DC,December 1987.

-63-

64 • Holding the Edge: Maintaining the Defense Technology Base

ogy development programs to fruition; and third,because the labs and their sponsoring agency haveused the concept of ‘‘work for others” to redeployprofessional staff as projects wind down, and tomove into areas contiguous to their principal mis-sions.

After outlining both approaches to technologydevelopment, this chapter assesses both kinds ofinstitutions with respect to five topics: 1) manage-ment flexibility, 2) the extent to which GOCOinstitutions tend to become more like governmentlabs over time, 3) the ability of both kinds ofinstitutions to transfer the results of their 6.1-6.3programs to user organizations, 4) their mechanismsfor diversifying within their basic missions, and 5)the ability of government labs to assimilate the moresuccessful features of GOCO institutions.

GOVERNMENT-OWNED,GOVERNMENT-OPERATED

LABORATORIES

Justifications for In-house WorkGovernment-owned and operated facilities can be

justified for many reasons. First, apart from the issueof whether such labs serve as smart buyers, performinherently governmental functions, or provide tech-nical assistance for fielded systems, the relation oflaboratory to sponsor is more clear cut than it is forother arrangements. Government operation avoidsthe criticism sometimes made of GOCOs that thegovernment does not know whether a lab’s execu-tives identify with the government or the contractorwho pays their salaries. As one authority notes,‘‘in-house laboratories can be expected to share thesense of mission of their agency and to be responsiveto their needs. ” Such labs provide stability andcontinuity “by simply continuing arrangements thathave evolved historically. ”2

But such justifications skirt the important ques-tion: Why should technology for weapons systems,space exploration, or measurement protocols bedeveloped out of government-staffed labs at all?

There are five principal justifications for suchfacilities:

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●

●

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●

that certain functions are inherently govern-mental and may not be delegated to others,that the lab serves as a smart buyer, evaluatingits contractors and keeping them at arm’slength,that, through basic research, the lab can origi-nate new concepts that, with support from itssponsors, may develop into fielded systems;that the lab can do special-purpose work formilitary customers that either is of no interestto industry or is kept from industry for securityreasons, andthat the lab can provide support to users once aweapons system has been successfully fielded.

Moreover, in-house laboratories can react quickly tomilitary emergencies, as the Naval Research Labora-tory’s (NRL’s) recent support for the fleet in thePersian Gulf shows.

Inherently Governmental Functions

The concept of ‘inherently governmental” func-tions is perhaps the fundamental justification fortechnology development institutions run by civilservants. As Budget Director David Bell toldCongress in 1962, there are certain functions thatmay not be contracted out, functions that include:

the decisions on what work is to be done, whatobjectives are to be set for the work, what time periodand what costs are to be associated with the work . . .the evaluation and responsibilities for knowingwhether the work has gone as it was supposed to go,and if it has not, what went wrong, and how it can becorrected on subsequent occasions.3

This position has important implications for theconduct of research at military laboratories. In thisview, a laboratory or research and developmentcenter should have the capability to conceive ofweapons development projects, develop technicalspecifications for industrial contractors, and super-vise contractor efforts to ensure the reliability ofsystems and components in the early stages of

ZT.J. W;] btis, “Domes[ic Models for National Laboratory Ulili.mtion,” in Energy Research Advisory Board, Final Report of the MultiprogramLuborafory Panel, Vof. //: Support Studies (Oak Ridge, TN: Oak R]dgc National Laboratory, September 1982), p. 63.

‘3 David Bell, Bweau of the Budget, ~~ykrtem$ Deve/opmen/ u~ Ma~g~rnent, testimony at hc~ings before the HOU,SC Committee on GovernmentOperations, Military Operations Subcommittee, June 21, 1962, 87th Congress, 2nd Session, p. 44.

Chapter S--The Management of Defense Department Laboratories . 65

development, regardless of cost.4 Carried to itslogical conclusion, this view holds that governmentscientists and engineers are a national asset that,within broad limits, should be retained beyond theimmediate programs for which they were hired; thatthe lab is a going concern, not a job shop; and thatits professional staff must do basic and exploratoryresearch, simply to evaluate work done outside itswalls.

This basic philosophy is perfectly compatiblewith a number of arrangements. Government labora-tories exist in every phase of dependence on theirprime sponsor. A lab may: work exclusively for onesponsor or for several; perform reimbursable workfor other organizations, as many service labs aredoing for the Strategic Defense Initiative Organiza-tion (SDIO); serve as a corporate laboratory over andabove its responsibilities to its parent agency; or(what often comes to the same thing) do work that isonly loosely coupled to its sponsor’s missions.There are even cases, like the optical facility at theAir Force Weapons Laboratory (Kirtland Air ForceBase, New Mexico), of small GOCO units embed-ded in a government-run engineering center. Fur-ther, many military and civilian labs, particularly atthe National Aeronautics and Space Administration(NASA), have chosen to contract out virtually all oftheir support functions-functions ranging fromcarting trash to managing the cafeteria to program-ming and operating tracking stations—without com-promising their principal functions.

Smart Buyer

The laboratory may also function as a smart buyer,a role that complements its mission to plan develop-ment projects. The lab acts as smart buyer when itdevelops a particular technology-say, a new kindof integrated circuit, wideband recording device, orfault-tolerant avionics—that it can hand over to acontractor for further development and production,or when it evaluates private sector developments. Ineffect, the lab’s R&D work presupposes, and de-pends on, the existence of a strong private sectorR&D infrastructure. At this level, the justificationfor research is that a lab cannot assess technologywithout being thoroughly knowledgeable. As one

DoD engineer put it, with some exaggeration, ‘if wego to a symposium and see something new, we’renot doing our jobs. ”

In another sense, the in-house lab serves as asmart buyer when it proves a concept that may leadto new technology. The job of an engineering centerworking on, for example, very-high-speed-integrated circuit (VHSIC) technology is not tomake the systems work, but to show that they willwork. Actual operational success is in the hands ofthe buying commands, systems developers, andproduction people. A military service will insertVHSIC or other technologies only where the tech-nology can ‘‘buy its way” into a weapons system.

Where a lab really acts as smart buyer is inbringing its expertise to bear in deciding when workin a certain area has gone as far as it should. As onetechnical director put it, his job “is to kill offprojects that will not fly before costs get out ofhand. ”

Long-term Research

The laboratory also serves as an incubator of newconcepts. In fact, it is this role that serves as theprincipal justification for much 6.1 and 6.2 workcarried out by DoD institutions. It is more obviousat NRL than at the other Navy R&D Centers—butnowhere is it insignificant. If NRL has become acorporate lab for all of DoD, it is because of its workin technologies that had no immediate applicationbut that would ultimately define the technology fora new generation of weapons systems. NRL’s workin a variety of fields-designing x-ray astronomyexperiments, developing a unique class of electroac -tive polymers, perfecting ceramic-air composites forunderwater sensors—positions the Navy to moveinto the development phase, confident that thetechnology to make systems work is available.

The importance of such advanced work may begauged by the efforts of lab technical directors toincrease their pot of 6.1 and discretionary funds—though it should be noted that the two are by nomeans the same. Most of them would agree, in thewords of one of them, that the government ‘shouldsupport some tech base work that is independent of

@n his point, sw Feder~ Coordinating Council for Science, Engineering and Technology, ‘‘A Research and Development Management Approach:Report of the Committee on Application of OMB Circular A-76 (o R& D,” Washington, DC, Oct. 31, 1979, pp. VI-VII,

66 ● Holding the Edge: Maintaining the Defense Technology Base

any particular program, because otherwise you mayshut out some technologies that could become veryimportant. ”

The sponsoring of basic research at militarylaboratories serves a number of ends. Basic researchcan be justified as a means of enhancing the lab’sreputation; indeed, most facilities try to hire the bestscience and engineering graduates by holding outthe possibility of their doing some basic research.Such research makes scientists available to engi-neers to work on serious technical problems, withoutgoing into development work full time. Finally,basic research allows an engineering-oriented facil-ity to develop a few special applications to militarytechnology.

Yet the laboratory executives are caught on thehorns of a dilemma. To try to justify basic researchon the ground that it will lead to some definite payoffis self-defeating, especially in an environment whereeverything militates against risk-taking. Basic re-search can be justified because it helps to define thetechnology out of which weapons systems maydevelop; new defense systems are made up offragments of new defense technologies coupled to anexisting base. According to this view, 6.1 work is the“push” that really changes the technology base,with 6.2 and beyond as the “pull.” Nor need basicresearch always precede the product developmentcycle; a military microelectronics facility producingcustomized chips for military customers, for exam-ple, may do fundamental research into the propertiesof matter as part of its design program.

Special-purpose Work

The in-house laboratory also exists to do work thatis not of interest to commercial industry but is ofinterest to the military. A case in point is the kind ofsmall-batch production of radiation-hardened chipsdone at a few labs. Such R&D serves two relatedpurposes: it produces highly specialized chips insmall runs for military customers and, more impor-tant, it leads to new technology for subsequentinsertion into existing systems. The drafting of newspecifications can, by itself, lead to new develop-ment projects. What is more, the effort to improveproduction cycles can itself lead to new technology:in areas like silicon-on-sapphire microelectronicstechnology, military labs are far ahead of industry.

Such special-purpose facilities help to tie indus-try to the work that is being carried on at militaryfacilities. By pushing the state of the art, thesefacilities force industry to focus on applications ofmilitary interest, such as the radiation hardening ofintegrated circuits and the applications of iridiumphosphide and gallium arsenide technologies. Bydoing very advanced research, these small, special-ized production facilities stimulate the right kind ofwork, so that it becomes available for industrialproduction.

User Support

For many labs, work does not end when they handover technology to the buying organization. In thiscontext, the term “laboratory “ is something of amisnomer, applying as it does to the NRL and a fewsmaller institutions. The preponderance of serviceR&D facilities are product development or engineer-ing centers, whose staff will often continue work tothe fielding of a new system and beyond.

Viewed in this light, much of the research at theNaval Weapons Center (NWC), the Naval OceanSystems Center (NOSC), and even NRL is done thebetter to support their principal customers or, asnecessary, to provide quality control support to thecontractor. Thus NWC was brought in by the NavalAir Systems Command to assist in redesigning theSparrow-a medium-range, air-to-air guided missilethat had run into serious problems when deployed inVietnam; NRL has consistently sent its scientistsand engineers in to support the fleet; and many AirForce R&D centers have sophisticated approaches toinserting new technologies in existing systems.Indeed, much of this technology insertion can occurindirectly: for example, a company may do develop-ment work under contract to an engineering center,adapt the new technology and sell it back to themilitary.

If stress has been laid on the role of Navy centersin supporting the fleet, it is because this is one of thefeatures that most distinguish them from the otherServices, especially the Air Force. Compared to theNavy, the Air Force uses its labs more exclusivelyfor technology exploration and component work,and uses industry for bringing technology to produc-tion. The Navy, on the other hand, uses its labs in‘‘full spectrum mode” for 6.1 through 6.4 (engineer-ing development) work, and acquisition support and

Chapter S---The Management of Defense Department Laboratories ● 67

fleet support thereafter. The reason, as one Navyofficial explained, is that the Navy’s mission ‘makescontinuous support for industry necessary, because[otherwise] a contractor might have to go out on acarrier for six months. ”

Still, it must be said that much of the justificationfor military work conducted out of military facilitiesis somewhat after the fact. The current institutionalarrangement of military R&D is more a matter ofhistory than of cold logic. In fact, the two alternativemodels for technology development within thegovernment were generated outside DoD, by NASAand the Atomic Energy Commission (AEC). Eachmodel embodied a philosophy of how differentresearch and engineering centers could be groupedin related fashion.

In each case, the critical decisions on how theagencies would operate were taken right at thebeginning. NASA would operate through a networkof field centers staffed by government employeeswho would define the work to be done, select theprime contractors, evaluate the work done and, ifnecessary, be prepared to go into the contractor’splant and take over.5 By contrast, the AEC chose towork through a network of multiprogram laborato-ries operated under contract; in the case of theweapons laboratories, they would be part of avertically integrated system combining research,weapons design, and production.

The important point is this: the institutionalarrangements at NASA and AEC were matters ofdeliberate policy. By contrast, the military R&Destablishment has grown haphazardly without thekind of fundamental decisions that NASA or AECtook. Unlike those agencies, the Services and theOffice of the Secretary of Defense (OSD) havevacillated among a number of approaches: betweenbuilding up labs as full-spectrum organizations, orseparating generic technology base work fromengineering and development; or between doingresearch loosely coupled to service missions andpressuring the labs to work only in mission-relatedareas. While DoD’s stated policy is that its in-houselabs shall maintain “a level of technological leader-

ship that shall enable the United States to develop,acquire, and maintain military capabilities neededfor national security,” the actual policies of OSDand the services are somewhat less consistent.6

This inconsistency shows itself in organizationalarrangements that (so to speak) require one part ofthe organization to work around the rest. Despiteeverything that militates against it (see ch. 4), somegood work manages to get done. The problems thatafflict military tech base work are those that afflictall very large organizations. In general terms,bureaucracies are “tentacular”; that is, if you makea mistake, be very sure that every hole is plugged sothat it will never happen again. One official put itthis way, tongue firmly in cheek: “Central is better.If you want to buy furniture, have one guy in chargeof buying for the entire organization, even if you cango across the street and get the item at a much lowerprice. ”

In fact, that remark identifies one of the key flawsin the entire DoD technology development organiza-tion. At many labs, the technical director has nocontrol over the most important support elements ofhis or her organization—the personnel office, thegeneral counsel, the procurement people, possiblyeven computing services, all of whom report to thebuying commands or headquarters.

But this is to anticipate the ensuing analysis ofoperations at military R&D centers. While one cangeneralize about the problems of the military labs, abetter approach is to begin with specific issues and,in the light of those analyses, to derive some usefulconclusions.

Personnel Management

Virtually every study of military laboratories hasnoted critical deficiencies in the way they recruit,train, and manage their professional staffs:

. Most of the larger laboratories experiencedifficulty in hiring and retaining qualifiedscientific and engineering personnel, especiallyhighly qualified senior staff.

Son (he dwl~lo~ t. ~reatc ~enters staffed by government employees, we Amo]d S. ~vine, Ma~ging/VAsA in fh APO11O Era, SP-4102 (Washington,DC: NASA Scientific & Technical Information Branch, 1982).

6u.s. Dep~ent of ~fenw, Under SWretW of ~fen~e for Rese~ch and Engin~ring, Dep~ent of Wfenx Instruction 3201.3, MN. 31, 1981,p. 2. Cited in Library of Congress, Congressional Research Service, “Science Support by the Department of Defense,” December 1986, pp. 178-179.

68 . Holding the Edge: Maintaining the Defense Technology Base

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The government is at a major disadvantage incompeting with industry and the universitiesfor the best technical and engineering gradu-ates.The job classification system requires elaborateposition descriptions that have little or nothingto do with the positions being filled.The system makes it difficult to reward thegood performers or remove the poor ones.Inflexibility in setting salaries means that pay isseldom commensurate with performance:

Lab directors do have some discretion to workwithin the system. Thus the Navy uses ‘‘managingto payroll” (MTP) as a discipline to keep from hiringtoo many people, while allowing trade-offs. MTPallows the naval centers to keep their dollarsconstant while changing the number of slots. Fromthe Navy’s perspective, the advantages of MTP are,first, that it gives technical directors flexibility indistributing work among different center employeesand contractors; and second, that it helps to“cleanse” the centers by shedding work that theyshould not have taken on in the first place. UnderMTP, centers can maintain a stable work force eitherby cutting back on contractors, or by carrying theirpeople on overhead.

Most military R&D facilities have tried to makesimilar, piecemeal improvements within the currentsystem. But two R&D centers have successfullyattempted a more comprehensive approach, withinthe terms blessed by Title VI of the 1978 CivilService Reform Act. Since 1980 the NWC (ChinaLake, CA) and the NOSC (San Diego, CA) haveparticipated in a personnel experiment, with twoother Navy centers as controls.

The China Lake experiment, as it is generallyknown, breaks with the standard Federal personnelsystem in four ways: 1) separate career paths, withdistinct paths for scientists and engineers on the onehand and technical or administrative specialists onthe other; 2) the consolidation of 15 General

Schedule (GS) grade classifications into no morethan 5 broad “pay bands” corresponding to careerpaths (professional, technical, administrative, tech-nical specialists, clerical/assistant); 3) abbreviatedposition descriptions and standards; and 4) a muchcloser linking of pay to performance. Although theOffice of Personnel Management (OPM), whichoversees the project, originally designed it to run 5years, Congress has extended it to 1990.7

Differences in the ways the two centers haveimplemented the China Lake experiment are minorcompared to the similarities. At both NOSC andChina Lake, pay is linked to the GS scheme ofclassification, There is a set formula for hiring juniorprofessionals determined by each center’s personneloffice; at higher levels, supervisors set salariesaccording to the pay bands, with salary tables basedon government-wide changes in GS pay scales. Eachcareer path is a separate competitive path: ifreductions in force occur at a center, they can occuronly within specified career paths.

China Lake has been one of the most closelyfollowed demonstration projects ever sponsored bythe Federal Government. OPM has monitored theproject since its inception, issuing annual progressreports and a comprehensive evaluation in 1986. Inthat report, OPM found that the project had largelysucceeded in doing what it was intended to do.Compared to the control sites, personnel at thedemonstration labs-employees and supervisors—perceived the system to be more flexible than theNavy’s conventional performance appraisal system.In reviewing compensation systems, OPM con-cluded that the positive results it found seemed tohave been “strongly influenced by the introductionof broad pay ranges corresponding to the newclassification levels . . . broader pay ranges providegreater latitude in making performance-based paydistinctions.”8

OPM identified other elements that, in theopinion of its staff, helped account for the project’s

vTherehave ken mmy dcscrip~i~ns Ofthe china L*C experlrncnt. This account draws on several, including: U.S. ~fice of personnei M~agement,Research and Demonstration Staff, Office of Performance Management, ‘‘Status of the Evaluation of the Navy PersonneI Management DemonstrationProject: Management Report I,” March 1984 and (s~e source) “A Summary Assessment of the Navy Demonstra[ionRoject: Management Report IX,”February 1986. The original opM propos~ is in Federal Register, VOI. 45, No. 77, Apr. 18, 1980, pp. 26504-26543. A good summary account may befound in Larry Wilson, ‘ ‘The Navy’s J3~rirnent with Pay, Perform~ce and Apprai@,” De~ense ManugernenrJournuf, Vol. 21, No. 3, 3rd quarter 1985,pp. 30-40.

W.!j. office of Personnel Management, “A Summary Assessment, ” op. cit., footnote 7, P. VI1.

Chapter 5—The Management of Defense Department Laboratories ● 69

relative success. One of these was the labs’ involve-ment in developing their system. Another was thatthe system covered employees at a wide range ofwork levels, and a third was the protection ofemployees from any initial adverse impact, by a‘‘buy-out” feature written into the project plan.

The China Lake experiment was not designed tobe cost neutral. That is, the Navy recognized thatthere would be certain start-up costs in moving to thenew system. Once the system was in place, averagesalary differences between demonstration and con-trol labs tended to flatten out, to the point that thedifference among scientists and engineers dimin-ished greatly or even disappeared after they had beenon board 3 or 4 years. 9 But the ways in which thesame pot of money was distributed were quitedifferent. As OPM put it, “the initial salary gap isgreat enough that in any year the remaining demon-stration v. control difference in the salaries of newand recent hires accounts for about 2 percent to 3percent in additional demonstration payroll costs.”

One of OPM’s most significant conclusionsabout China Lake was that although costs arecontrollable, “the decision to limit costs can sub-stantially alter the results achieved. Unless organiza-tions are willing to make some investment in the newsystems, employees are likely to perceive they willgain no benefit from the systems, or that they willactually be penalized under the systems.”11 In fact,OPM concluded, total salary costs had risen by 6.0percent (as of January 1986) over those of the controlsites as a direct result of the project. Costs rosebecause the demonstration labs were offering toscientists and engineers starting salaries that were17.5 percent higher than at the control labs, andbecause China Lake permitted greater salary in-

creases within pay bands than would have beenpossible under the General Schedule.12

A May 1988 report by the General AccountingOffice (GAO) confirmed many of these findings.GAO’s general conclusion was that the projectdemonstrated that a pay-for-performance systemcould be implemented to the general satisfaction ofmany supervisors and their employees. Despite thisqualified approval, GAO found that the OPMevaluation left many questions unanswered. InGAO’s view, “the overall weakness of the ChinaLake evaluation was that when all is said and done,the volume of data that were either missing ornon-comparable was quite large. ” Although GAOdid not know the reasons behind the data problems,it determined that ‘they were of such magnitude thatfirm conclusions about project effectiveness cannotbe drawn.”13

The problems GAO cited included the non-comparability of the test and control sites and a lackof information on how and to what extent the projectwas implemented at the test sites.14

But this begs the question. Underlying the GAOanalysis is the assumption that one is comparing atentative demonstration with a system that is inter-nally coherent and designed to address the sameissues (but in a different way) which the China Lakedemonstration was created to address. Leaving toone side the difficulty of evaluating so complex aprogram, the existing government personnel systemis even more vulnerable to criticism. Speaking onlyof current hiring procedures, former OPM DirectorConstance Homer said that the system “is slow; itis legally trammeled and intellectually confused,and it is impossible to explain to potential candi-dates.”’ China Lake and a comparable demonstra-

~Ibid., pp. 51-52.

ltllbid., p. 52.

11 Ibid., p. VIII.12[,, ~ “@ate “f its 1986 ~eP~, OpM concluded Mat tie average sa]~ries of dcm~n~tralion lab scientists ~d engineers continued tO gTOW re]atiVe

to those of their control lab counterparts. This difference could nor be cxpltiined by the effecxs of salary increases, since these were virtually identicalat both kinds of site. Higher starting salaries for scientists and engineers, which were 18.7 to 29.1 percent greater at the demonstration sites, secmcd toaccount for much of the differential. U.S. Office of Personnel Managcmcm, ‘ ‘Salary Costs and Pcrfcmnance-Based Pay Under the Navy PersonnelManagement Demonstration ProJcct: 1986 Update: Managcmcnt Report X,” December 1987, pp. 3-6.

IJu.s. General Amounting OfilCC, “Observations on the Navy’s Pcrsormcl Management Demonstration Project,” GGD-88-79, May 1988, p. 29.These remarks were included in a letter from GAO to Senator !hn Nunn, Chairman of the Senate Armed Services Committee.

141n light of its findings, 1( is wo~h noting that GA() has ins[ltu[cd its ow~ pay. fc>r-pcrformmce system, wifi tbec pay binds corresponding 10 Grades7 through 12, “leadership” positions at GS-13/14, and “managerial” posts at GS - 15.

l~Constance Homer, ‘‘Address to Career Entry Recruitment (’onfcrencc, ” Washington, DC, June 23, 1988, p. 4.

70 . Holding the Edge: Maintaining the Defense Technology Base

tion project at the National Institute of Standards andTechnology (NIST) (formerly the National Bureauof Standards) have a coherence and logic that thecurrent system altogether lacks.16

What has the China Lake experiment reallyachieved? In one sense, it “demonstrates” just howinadequate the current personnel system is. Note thatthe experiment is now into its ninth year, with noimmediate prospect of extending it to other govern-ment laboratories. A program that began underCarter and continued under Reagan awaits the BushAdministration for extension or termination. TheCivil Service Reform Act that authorized the projectprovided no mechanism for extending it beyond itstest sites. Assuming that the project is extendedbeyond 1990, the government may be faced with asuccessful experiment that will have no ramifica-tions, unless Congress enacts proposals to extend theproject to Federal laboratories generally .17

But if one concedes—as even GAO has done—that the China Lake experiment did what it wasmeant to do, its success is somewhat irrelevant to theproblems of DoD laboratories. One could conceiveof small-scale improvements to the current systemeven without instituting performance-based pay.After all, OPM has in place mechanisms that makeit easier for agencies to hire qualified professionalstaff. Thus, agencies can now apply to OPM forauthority to hire engineers directly, without an initialscreening by OPM. OPM has delegated to agenciesthe authority to negotiate starting salaries withtop-quality candidates for jobs at grades GS-11 andhigher. On a pilot basis, OPM is drafting simplerstandards that agencies can use to classify positions,including engineering positions, These new stan-dards, OPM says, ‘‘will give agencies more flexibil-ity to redesign work, to classify jobs and to writeagency specific guides if needed. ” *8

But the ultimate limitation of China Lake andsimilar proposals is that they simply divide up piecesof a pie whose overall size remains about the same.Salaries are adjusted within narrow parameters;despite increases at demonstration sites, OPM foundthat salaries for nearly all the occupations comparedgrew 5 to 19 percent less at those sites than didsalaries for the same occupations in the privatesector. 19

In this respect, the NIST project is superiorbecause it has the authority to adjust the salaries itpays its scientists and engineers to match those paidby the private sector for comparable work. Andwhile its demonstration project is supposed to becost neutral during the first of its 5 years, NIST canuse the surveys as a device to narrow (if not close)the salary gap between itself—NIST salaries arealready among the highest at Federal laboratories—and industry by work force attrition.

Even if the China Lake experiment were extendedgovernment-wide, it would take a long time to undothe damage wrought by the current system. Person-nel issues cannot be isolated from other issues—funding, research planning, the acquisition of majorsystems, and the like. Among the elements not yetmentioned that affect the labs’ ability to hire,promote, and retain are the periodic hiring freezesthat affect most government institutions; the newFederal Employees Retirement System, which makesit easier for government workers with portablebenefits to leave the government earlier; and cut-backs in travel budgets, which make it harder for labofficials to recruit. Compared to the larger DOElaboratories, which recruit from the top 10 percent ofgraduates from the major national technical schools,most DoD managers tend to hire locally-partlybecause of small travel budgets, partly because theyare resigned to the unavailability of top graduates.

lbThere me mtiJor differences in the design of the NIST and China Lake projects. Although it incorporates such concepts as pay bands and career paths,NIST has certain special features: direct-hire authority for all professional cmployees, an annual comparability survey of total compensation of NISTpositions to similar positions in the private sector, cost neutrality, and recruiting allowances for professionals that NIST particularly wants to hire.

ITThere have been a n~lber of legislative proposals to reform the Federal personnel system. OPM twice unsuccessfully introduced its Own ProPosaifor a “Simplified Personnel System, ” most recently in January 1987. A bill, S. 2530, introduced by Senator Jeff Bingaman (D-New Mexico) in June1988 would extend the China Lake experiment beyond the two naval centers currently involved. S. 2530 would authorize between six and ten personneldemonstrations, of which four would be instituted at DoD and onc at NASA. The biH would establish higher minimum rates of pay and an alternativecompensation system based on comparable rates for comparable private-sector work.

I~U.S. Office of Personnel Management, “Simplifying the Federal Manager’s Job” (n.d.), p. 3.19u,s, Office of permmcl ~m~gement, op, cit., footnote ~~, p. [], opM ~erive(f its sa]ary-comp~son fi~res from data provided by tie Bureau Of

Labor Statistics.


But personnel issues extend beyond competingwith the private sector for new hires. Retaining goodemployees in an environment where the work forceis overgraded but underpaid is just as formidable aproblem. Technical directors stressed the nature ofthe work itself as one of the strongest attractions fortheir best and brightest. Good people stay if the workis challenging, if they have the opportunity to dosome basic research and publish their findings, ifdiscretionary funding is available to start new work,and if the laboratory gives equal recognition toseparate career tracks for researchers and managers.

Although many lab officials spoke of having“two-track” systems, the evidence for such isambiguous. According to a survey by the ArmyLaboratory Command, lower-level engineers be-lieved “that a scientist had to become a manager inorder to get ahead in a government laboratory. ”20

From the lab director’s perspective, someone has totake on the responsibilities with which externalorganizations task the lab, as well as manage thelarger programs that constitute its mission. Thus,inevitably, many scientists and engineers comeunder pressure from their superiors to take on workoutside the disciplines in which they were trained.Sometimes, scientists and engineers make a success-ful transition into management. Other times, as oneformer government official said, “you take goodengineers and turn them into lousy managers. ”

There is also a more insidious threat to theintegrity of the professional work force. ThroughoutDoD laboratories, the increase in congressionaloversight has gradually transformed the role ofresearch executives, such as division heads andbranch chiefs. Rather than managing projects orensuring their technical quality, one of their princi-pal jobs is now to insulate their bench-level peoplefrom the requirements with which Congress tasksthe labs and their sponsors. In particular, the amountof oversight and paperwork appears to have in-creased the most at those laboratories where the bulkof the work is contracted out—thus forcing manag-ers and other senior professionals into contractadministration.

In sum, the personnel problems that afflict mostDoD laboratories are not personnel issues in thenarrow sense. They flow, rather, from the totalenvironment within which professional staff andmanagers try to get their jobs done. Even where acenter can attract the top graduates, it has to contendwith problems that are not ‘‘personnel” at all:uncertain budgets, long lead times in building newfacilities and procuring new equipment, and limitson the pot of discretionary funds available to startnew work. The incentives for a new hire to remainpermanently depend more on the total environmentof his or her institution than on personnel manage-ment practices in the narrow sense.

Two more points deserve emphasis. The first isthat the Federal personnel system creates someperverse incentives for retaining employees. Underthe Federal Employees Retirement System, thebetter employees can take their retirement benefitsand leave for industry and universities with many oftheir more productive years still ahead. At the sametime, mediocre performers remain; under the ChinaLake system or Managing to Payroll, they can expectno major salary increases, but they also stand littlerisk of being terminated. Thus, a low turnover rate ata laboratory can be a sign of health or a portent ofinstitutional decline.

The other point has to do with the optimal size oflaboratories, an issue discussed later in connectionwith GOCO facilities. It may well be that there aretoo many DoD laboratories, and that many of themare too small ever to achieve critical mass. If aninstitution is too small, there will be too littleflexibility for a few people to strike out into newterritory, or for new ideas to spill over into researchwork. At smaller facilities, there may not be enoughgroups of two or three or four people delving intoareas unconnected with their current missions butthat might lead to new missions. Governmentinstitutions seemingly must have more than about1,000 people before the kind of flexibility that makesfor their survival exists.21 Additionally, as weaponssystems grow ever more sophisticated, the numberof disciplines that a lab needs under one roof willincrease.

Z~<S. Army Laboratory Command, 4 ‘Innovative Personnel Practices, ” March 1988, p. 4.ZIHm~ Mwk ad AmOld ~vine, The Ma~8eme~ of Research ln~titutions. A ~ok atGover~entL&oratories, SP4181 (Washington, ~: NASA

Scientific & Technical Information Branch, 1984), p. 70.


The question of a lab’s optimal size bearsdirectly on the retention of quality staff. Unless a labis assigned a mission in one narrowly definedarea-the Army’s Night Vision Laboratory (Ft.Belvoir, VA) might be an example-it must havescientists and engineers drawn from a variety ofdisciplines. Even in that case, as a 1979 governmentreport noted, ‘‘the development and enhancement ofmodem technologies is an inherently multidisci-plined endeavor. The most narrowly focused ofresearch activities today involve several profes-sional disciplines as well as highly skilled technicalsupport personnel. “22

The DOE’s weapons laboratories have becomeadept at instituting a matrix structure, wherebymoney is pulled away from divisions and moved intoprograms. The result is that there is more mobilitywithin Energy labs like Sandia and Los Alamos thanat most DoD labs. With some exceptions, a newprofessional hired at a DoD lab is likely to spend hisor her career within the same research division ordirectorate. In contrast, professionals at DOE labshave more options: beginning their careers at (say)the lab’s research division, they may move intomission-related areas, return to research, or moveinto management.

In fact, the DOE labs have done more to controlpersonnel problems than virtually any DoD facility.For one thing, they have bypassed the entire issue ofsalaries comparable to those of the private sector. Asa rule, salaries and personnel systems correspondclosely to those of the contractor who operates thelab: the personnel system at Sandia National Labora-tories is modeled on AT&T’s Bell Labs, while thoseat Los Alamos and Lawrence Livermore NationalLaboratories are modeled on that of the Universityof California system. For another, the DOE laborato-ries tend not to hire for specific jobs. Their size andmultidisciplinary capabilities make it easier for labexecutives to move people to where they are neededand redeploy people as projects wind down.

Laboratory Management Issues: Funding

The ability of a government laboratory to accom-plish its mission depends on the ways it is funded.The amount of funding obviously matters, but so

does its predictability, flexibility, and the ability oflab managers to disburse funds once they becomeavailable. Laboratory executives say they preferfunding that is tight but predictable over larger butunpredictable funds.

At DoD labs, funding problems are at least asnumerous as the personnel problems they aggravate.Funding is unstable, making planning and staffcontinuity on projects difficult; it is inflexible, inthat most funds cannot easily be transferred to otheraccounts where they might be needed more; andmonies must be spent during the fiscal year forwhich Congress appropriated them, preventing thebuildup of contingency funds. This requirementaffects DoD’s ability to sustain long-term work.

Nevertheless, there are important differences inthe way the services do their getting and spending—with the Navy centers obtaining their funding fromthe Naval Industrial Fund (NIF) and the Army andAir Force receiving money through line-item appro-priations.

NIF is a shorthand way of saying that navalcenters must recover the full cost of their operations.Industrial funding provides working capital forindustrial-type activities, such as shipyards, theoverhaul of aircraft, or running a laboratory, Underthis approach, the activity pays all its expenses outof working capital and charges its customer the fullcost of its products and services. Each industrialfund activity group has a cost accounting systemspecifically designed for its operations, to identifyand accumulate the costs of their products orservices.

This approach has important implications for theconduct of naval research, development, test andevaluation. First, because the NIF is a revolvingfund, payments that naval centers receive from theircustomers should do no more than replenish theworking capital fund that finances operations untilpayments are received. Second, in relation to their“buying” commands, naval centers are contractorsde facto and de jure. A Naval center undertakes workfor (say) the Naval Sea Systems Command on thebasis of a contractual agreement that obligates bothparties until work is completed. A facility like theNWC at China Lake has virtually no line-item

zzFedera] Coordinating Council for Science, Engineering and Technology, op. cit., footnote 4, P. 35.

Chapter 5-The Management of Defense Department Laboratories ● 73

budget authority. Instead, it operates like a Battelleor SRI International, which would go out of businessif it had no customers.

A third, very important, feature of NIF is the assetcapitalization program (ACP).23 Effective fiscalyear 1983, the Deputy Secretary of Defense ap-proved asset capitalization as a way to fund themodernizing of industrial fund equipment. Underthe program, equipment costs are recovered over thelife of the asset by including depreciation costs in therates charged to customers, The availability of ACPmoney strengthens the cash position of industrialfund, and helps fund managers avoid shortages.

Thus, naval engineering centers obtain workquite differently than a NASA research center or anArmy laboratory-although Army research, devel-opment, test, and evaluation (RDT&E) was fundedindustrially at one time. At a facility like the NWC,the program offices serve as “shadow offices” totheir counterparts in the prime sponsoring organiza-tion, which in their case is the Space and NavalWarfare Systems Command (SPAWAR). Note thatthis is not the principal buying organization for thecenter; its principal customer, accounting for morethan half of its total obligational authority, is theNaval Air Systems Command. Although there aresomething like 3,000 customer orders in the systemat a given time, some two dozen cover most ofNWC’s work.

In the view of managers at the Navy centers,industrial funding is an effective way of gettingwork done. Among its advantages are that itprovides limited authority to start work on asponsor’s order prior to the receipt of funds, assistsmanagers to control their resources better, enablesthe facility to finance and carry inventories ofnon-standard materials, permits the use of workingcapital for initially charging all costs, including 6.1and 6.2 work, and serves to develop total costs foreach task, including overhead.

Most Navy lab managers consider a recent OSDproposal to terminate NIF over the next two fiscalyears potentially disastrous. DoD contends thatindustrial funds are more costly to operate than other

systems, that their advantages have not been demon-strated, that industrial fund clients are not bona fidecustomers who can take their business elsewhere,and that as structured, the system makes DoD andcongressional oversight difficult. The Navy, sup-ported by GAO, disputes these assertions, chimingthat NIF meets the criteria under which the Navy’sresearch and engineering activities are financed.24

If NIF were terminated, the Navy would haveseveral options. One would be to convert to aresource management system that combined customer-funded direct labor with Navy-funded overheadunder an appropriate budget line item. This could bedisastrous, in the view of some officials, becauseoverhead becomes very difficult to defend in acompetitive budget preparation environment. Alter-natively, the Navy could adopt a resource manage-ment system with ‘‘applied overhead,” which isidentical to NIF at the macro level, except that it hasno asset capitalization program. While the Navycould live with this arrangement, it would incursizable one-time costs to convert its financialsystems.

Compared to Army and Air Force labs, industrialfunding gives the Navy a certain flexibility instarting and accounting for work. But it is still firmlypart of the appropriations process, although at oneremove. The start of work at a Navy lab still dependson its customers having the necessary obligationalauthority-and, if that money comes in late in thefiscal year, that it remains available to complete thework it is funding. Further, there are important areasof naval lab operations not covered by industrialfunding, such as military salaries, non-appropriatedfunds, and military construction.

Military construction deserves special mention,since delays in new construction are one of the majorobstacles to lab performance. This is the case forseveral reasons: as with other functional areas, thoseresponsible for facilities management do not reportto the lab technical director; lab requests for newfacilities are thrown into one “pot” with otherconstruction requests, and new facilities for labsgenerally have rather low priority. At some DoD

zson the -t capi~i~ation program, see U.S. General Accounting Office, “Industrial Funds: DoD Should Improve Its Accounting for AssetCapitalization Program Funds,” NSIAD-86-1 12, May 1986.

ZQU.S. Gener~ Accounting Office, “Proposal to Change From Industrial Funding to Another Method, ” NSIAD-89-47, December 1988, pp. 1-3.


laboratories, many facilities are 40 years or evenolder.

This is doubly unfortunate, because good facili-ties not only drive a lab’s mission, but also attractgood people. In turn, an excellent staff will, to adegree, generate good facilities, The process isself-perpetuating; people tend to generate newprograms around the facilities, so that when anRDT&E organization matures, its roles and missionsdepend primarily on the facilities available: windtunnels, clean rooms, anechoic chambers, simula-tors, and the like. As other authors have noted,“facilities have a longer ‘half life’ than people. Afacility like the 40-by-80-foot wind tunnel at [NASA’SAmes Research Center] might be used for fortyyears, while an individual researcher will change hisinterests every three or four years and move on tosomething new. Thus a vigorous research anddevelopment program demands an efficient facilitiesdevelopment staff, more particularly where onefacility serves a number of projects. ”25 By thiscriterion, few DoD laboratories have the power todevelop facilities to keep pace with either theequipment that they will house or the missions theyare designed to support.

Thus, DoD laboratories are subject to all thedisadvantages and few of the advantages of facilitiesowned and operated by the government. But it isimportant to understand that these problems do notflow automatically from the status of these facilitiesas government-owned, government-operated insti-tutions. Both the NASA centers and NIST haveshown greater flexibility: NIST, because its role aslead agency in measurement science is highly valuedby its government customers; NASA, because of themuch stronger ties between the centers and theirprincipal buyer, the headquarters program offices,than in the DoD system. At NASA, the centerslargely define the programs that the agency funds. AtDoD, by contrast, the relation of the R&D infrastruc-ture to the buying commands is much less certain.

The next section describes alternative approachesto developing technology—those represented by

GOCO facilities of the DOE and the somewhatsimilar FFRDCs under DoD.

GOVERNMENT-OWNED,CONTRACTOR-OPERATED

FACILITIES: AN ALTERNATIVEMODEL

Introduction

The GOCO facilities are an unparalleled resourcefor the United States. In particular, the nine multi-program, or ‘‘national” laboratories represent one ofthe heaviest investments in basic and appliedresearch made by the United States or any othercountry. Besides conducting about 70 percent of theDOE’s weapons development and a quarter of itsenergy-related research, the national labs have otherroles. As systems engineers for DOE, as consultantsto State and local governments, and as stewards ofunique facilities, the labs contribute in many ways tothe Nation’s technology base.

From their inception, all the multiprogramlaboratories have been government-owned and contractor-operated. The Atomic Energy Commissioners chosethis course, although they were not barred fromoperating their own laboratories; indeed, the AtomicEnergy Act of 1946 authorized “a program offederally conducted research and development. ”According to Harold Orlans, the AEC contractedwith private organizations as the principal means of‘‘retaining a degree of normalcy and freedom in theevolving system of nuclear science and industry. ”26

By contracting with outside groups, AEC could keepthem informed about highly classified activities thatwould normally be confined to official circles, andbring to the government experience and advice notnormally available to it. Orlans concluded that thisdecision helped, as much as anything, “to keep theAEC more alive and alert, administratively andtechnically. ”27 The result was an arrangement thathas no counterpart in the Federal Government, savefor the contract between NASA and the CaliforniaInstitute of Technology to operate the Jet PropulsionLaboratory.

zshlwk and t.,evine, op. cit., footnote 21, pp. 83-84.‘2~H~O]d orIanS, contracting for Atoms (Washington, DC: Brookings institution, 19~7). P. ~.271 bid., p. 8.

Chapter 5-The Management of Defense Department Laboratories ● 75

Before turning to the applicability of theEnergy model to DoD institutions, somethingshould be added about FFRDCs like Lincoln Labo-ratory and university-affiliated research centers likethe Applied Physics Laboratory (APL) of The JohnsHopkins University.

28 DOD sponsored these centersfor much the same reasons that DOE chose tooperate its national labs through contractors: theServices sought independent outside expertise fromorganizations unfettered by many Federal regula-tions; they wanted to develop long-term relationswith such organizations; and they specificallywanted to deal with institutions tied to the universitycommunity. The 30-year collaboration between theNavy and the Applied Physics Laboratory on theFleet Ballistic Missile Program shows how effectivesuch a special relationship can be.

The main difference between contract centers likeAPL and a DOE laboratory is that the former areprivately owned organizations working for a pri-mary sponsor. At APL, for example, Johns Hopkinsowns the land and the buildings—although theNavy, APL’s prime sponsor, furnishes the equip-ment. There are other differences of degree ratherthan kind. Compared to the DOE weapons labs,which have their own audit organizations, FFRDCsare audited regularly by the Defense Contract AuditAgency (DCAA). Additionally, many centers haveto go through special procedures to avoid the fullweight of Federal regulations. For APL to avoid thebroad mandate of the Competition in ContractingAct for competitive procurement, the Navy’s SPA-WAR must draft a “justification and approval,”which the Assistant Secretary of the Navy forShipbuilding and Logistics ultimately signs,29

Although these contract research centers performsome of the functions of DOE’s national laborato-ries, there are significant differences. One differencehas to do with areas of emphasis: Compared to themany functions of the larger national laboratories,

the FFRDCs and university affiliates tend to concen-trate on systems integration and engineering serv-ices. They are more likely to work almost entirely forone sponsor, and to devote most of their resources toa few programs, than the national laboratories are.While the same could be said of DOE’s weaponslaboratories, their size, their diversity, and theircapacities for advanced research make them a moreappropriate model for DoD’s consideration.

The GOCO Relationship at the Departmentof Energy: Contractual Arrangements

The organization and operation of the multipro-gram DOE labs’ are in dramatic contrast to those oflabs operated by DoD employees. In the former, wefind the vertical integration of research, develop-ment, and operations; a long-term relationship withthe sponsoring agency; a critical mass of scientificand technical disciplines; and (compared to DoD)much greater flexibility in moving people betweendivisions and projects.

Although superficially complex, the administra-tive relations between the labs and DOE are actuallymuch simpler than those at DoD. Through its staffand program offices, DOE headquarters in Washing-ton sets broad policy and develops the overall budgetout of which funds to operate the labs will come.30

Eight field operations offices monitor the operatingcontracts, although their roles encompass muchmore. Finally, the labs carry out broad programs ofresearch and technology development within theguidelines approved by headquarters.

Arrangements between DOE and its contractorsvary within narrow limits. Management and Operat-ing contracts normally run for 5 years, with thecognizant operations office performing a‘ ‘compete-extend” analysis before the contract expires. Com-pared to standard commercial contracts between aFederal agency and vendors, the terms are moregeneral and until recently were based mainly on

28u.s. Gener~ Accounting Office, “Competition: Issues on Establishing and Using Federally Funded Research and Development Centers, ”NSIAD-88-22, March 1988.

2~Johns Hopkins University, Applied Physics Laboratow, “Report to The Johns Hopkins LJnivcrsity Trustees Committee on the Applied PhysicsLaboratory,” March 1988, p. 2.

30FOT Pupxs of contract a~ifistration, the fie]d Operations offices located c]o~ to the labs oversee them. For purposes of program phrming andinstitutional management, the nine muhiprogram laboratories are ‘‘administmuvely assigned” to two cognizant program offices, The Assistant Secretaryfor Defense Programs oversees the Idaho National Engineering, Lawnmcc Livermore, Los Alamos, and Sandia Nationat Laboratories. The Director ofEnergy Research is the “cognizant secretarial officer” for the Argonne, Brookhaven, Lawrence Berkeley, Oak Ridge, and Pacific Northwest NationalLaboratories.


reimbursable costs. Thus, AT&T manages Sandia ona no-profit, no-loss basis; the contracts for LosAlamos and Lawrence Livermore National Labora-tories reimburse the University of California foroperating costs and award it a management fee.More recently, at Oak Ridge National Laboratory,DOE has instituted a cost-plus-award-fee arrange-ment, in which the contractor, Martin MariettaCorp., receives a special fee based on performance.

If one looks at these contracts after reviewing astandard contract between DoD and one of itscommercial suppliers, they seem extraordinarilybroad. Here is virtually the entire scope of work inthe contract for managing Los Alamos NationalLaboratory:

Work under this contract shall, in general, com-prise research, development and educational activi-ties related to the nuclear sciences and the use ofenergy in mutually selected military and peacefulapplications, engineering services, and such otheractivities as the parties may agree upon from time totime . . .

Due to the critical character of the work from thestandpoint of the national defense and security, it isunderstood . . . that very close collaboration will berequired between the University and DOE withrespect to direction, emphasis, trends and adequacyof the total program.

How can anything so vague serve as the basis foroperating a laboratory with an annual budget of $900million? There is no single answer; instead, there areseveral reasons that this contract is a successfulinstrument for managing a national laboratory. Oneis that there is much more to the contract than thestatement of work just cited; there are, in fact,numerous powers, especially the power of the purse,by which DOE fleshes out the very broad mandatejust cited. Another reason is that after 40 years’experience of working together, both parties under-stand the terms very well. By itself, the GOCOcontract does not lead to a long-term relationship: itpresupposes it.

A special feature of the contracts between theUniversity of California and DOE is the provisionthat work shall be set by mutual agreement. These

“mutuality clauses” are unique, although at onetime NASA had such a clause in its contract withCalTech to operate the Jet Propulsion Laboratory.(CalTech has an R&D contract with NASA, not anoperating contract for administrative services.) To adegree, the mutuality clause gives a false impres-sion, since it implies that DOE may unilaterally taskother laboratories that do not have such a clause.There is actually a very complex give-and-takebetween all of the multiprogram laboratories, theirsponsors, their clients (including DoD), and theuniversities. The mutuality clause simply affirms theunderstanding that runs through all of these con-tracts: that DOE is tapping the expertise of outsideorganizations to run the labs; that this expertisecannot be used effectively if DOE elects to micro-manage the contractor; and that the contractor musthave freedom to select the technical approach mosteffective in carrying out the lab’s mission.

In this system, the operations offices are muchmore than contract administrators. This is why DOErejected a 1981 recommendation by the GAO thatthe operations offices report directly to each lab’scognizant program office, rather than to the Depart-ment’s Under Secretary. DOE officials contendedthat such a proposal would not only require a hugeincrease in Federal staffing, but would lead to “thebalkanization of the field structure.”31 A morecompelling justification for leaving the field struc-ture intact—as DOE did—is that the structure of theoperations offices mirrors the vertical integration ofthe Department as a whole. For example, besidesoverseeing the Sandia and Los Alamos laboratories,the Albuquerque Operations Office administers 7widely scattered weapons production facilities andthe system for transporting all government-ownedspecial nuclear materials.

The GOCO Relationship at the Departmentof Energy: Complying With Federal Norms

How far are the GOCO laboratories bound byFederal policies? There is no simple answer, perhapsbecause neither DOE nor its contractors wish to belocked into anything too definitive. Yet there hasbeen a gradual shift over the past decade, with DOE

31u.s4 Gener~ Accounting Office, ‘‘A New Headquarters/Field Structure Could Provide a Better Framework for Improving Department of EnergyOperations,” EMD-81-97, Sept. 3, 1981, See especially the comments of Assistant Secretary for Management and Administration William Heffelfmgerat pp. 48-49.

Chapter 5—The Management of Defense Department Laboratories . 77

trying to get the labs to conform more closely tolegislation and regulations.

The official view reflected in DOE directives andin congressional legislation is that the labs’ statusdoes not exempt them from complying with thespirit of Federal policies. As stated in an opinion ofthe Deputy Comptroller General, the labs mustcomply with “the Federal norm”:

It is our view that while Federal statutes andregulations which apply to direct procurement byFederal agencies may not apply per se to procure-ment by prime operating contractors . . . the primecontractor’s procurements must be consistent withand achieve the same policy objectives as the Federalstatutes and regulations. This, we believe, is what ismeant by the “Federal norm. “32

While a laboratory like Sandia follows AT&Tprocurement and personnel management policies, itis also bound by a variety of regulatory constraints.These include DOE acquisition regulations anddirectives that apply the Federal Acquisition Regu-lation to departmental entities, the Buy AmericanAct, and prevailing-wage legislation on Federallysubsidized construction contracts. As Federal con-tractors, the national labs also come under thesupervision of the Labor Department’s Office ofFederal Contract Compliance Programs,33

On the other hand, the labs are exempt from anumber of requirements that bind Federal agencies,among them formal advertising, set-aside programs,and the Competition in Contracting Act. Althoughmajor purchasers of supercomputers, the nationallaboratories are also exempt from complying withthe Brooks Act, which governs the acquisition ofcomputers and telecommunications equipment, atleast as it applies to scientific computing. Thesituation is less clear for administrative and general-purpose computers; the consensus at the labs is thatthey must sponsor full and open competition forthese machines. Finally, because Sandia and otherfacilities have their own audit capabilities, they donot require the services of the Defense ContractAudit Agency in monitoring their own contracts.Lab officials believe that they can handle small andmedium-sized procurements much faster than DCAA

can, although there is evidence (see below) thatprocurement lead times have increased substantiallyat the national labs.

These exemptions affect the labs’ operations inmany ways. First, they enable the labs to buildlong-term relations with industry in a way notpossible for Federal agencies bound by the Competi-tion in Contracting Act. Second, the labs find itexpedient to comply with the spirit of the law, evenwhen they are not bound by the letter. Thus theweapons laboratories set aside a substantial numberof smaller procurements for minority-owned smallbusinesses. For example, under pressure from GAO,Oak Ridge National Laboratory dropped its percent-age of sole-source procurements from 50 to 20percent. Third, these exemptions make it possiblefor the labs to function; to impose the full weight ofFederal regulations would undermine the rationalefor having them run by contract.

One area where the labs are free to set their courseis in personnel management. The personnel systemat each laboratory corresponds to that of the primecontractor because, as one official explained, “in aGOCO you have not only the people, but also theorganization’s management system. ” There are noassigned slots at DOE labs, and the very besttechnical people can make as much as $95,000,although a lower figure is more usual. The mostsenior executives at the weapons labs earn between$100,000 and $150,000, roughly twice what theircounterparts at the military labs earn.

The principal constraint on the willingness of alaboratory’s prime contractor to set the highestsalaries is the DOE review triggered at the $60,000threshold; the local operations office has approvalauthority up to $70,000, and DOE’s Office ofAdministration up to $80,000, with higher salariesrequiring the Director of Administration’s approval.Additionally, at some laboratories, DOE approvesthe appointments of the most senior executives.

DOE also approves facility-wide salary in-creases, based on cost-of-living adjustments, recruit-ment and retention rates, and the like. The facilityproposes an increase to the cognizant operationsoffice, which forwards the proposal with its recom-

qzDecision of Bputy comp~ol]er General in protest of Piasecki Aircraft COW. (B-190178, JUIY 6, 1978), P. lo.

33 Alone ~ong DOE labs, Sandia has tO file its accounting system with the governmen[’s Cost Accounting St~dmds Board.


mendations to headquarters. For its part, the Officeof Administration sponsors generic surveys of scien-tific and technical salaries. DoE is now developingcriteria to remove individual salary reviews andconvert to more “systemic” approaches to deter-mining appropriate levels.

Although practice varies from lab to lab, there isa certain uniformity in their hiring and promotionpolicies. When officials say that “there are noassigned slots at DOE laboratories,” they do notmean that people move randomly from assignmentto assignment. What they mean is that laboratoriesdo not hire for specific jobs. Instead, they hire peoplewith the technical disciplines that fit the laboratory’smission, and who give promise of performing wellin a number of environments. Again, many labs liketo move their “high-potential performers” withinand between program divisions, especially thoseindividuals with management potential.

The laboratories can hire and move around thebest people because of their sheer size. Each of theweapons labs has about 8,000 employees and, whilethis creates problems of its own, the number anddiversity of projects does make it easier to attract andretain the top engineering and scientific graduates—some of whom the labs hire on the spot. In particular,lab officials note that facilities are a key selling pointin hiring and promotions. Although layoffs do occur,the labs can keep them fairly small, since they haveother options not available to DoD laboratories, suchas finding slots at production centers for labemployees no longer needed at the main facility.

The personnel practices that DOE ratifies havemade the national labs far more competitive thanmost of those staffed by government employees.Thus, salaries are far more in line with industry andthe universities; the surveys sponsored by DOE helpto keep salaries realistic. Moreover, the labs recruitaggressively. Most of the larger ones recruit nation-ally and hire directly—something government labsare only beginning to do-and can attract the top 10percent of graduates from the best engineering andtechnical schools.

Funding Arrangements and Work for Others

The three weapons labs receive level-of-effortfunding for Defense programs. DOE allocates fundsto each institution annually, based on its mission and

the size of its staff. When the money becomesavailable to the laboratory, each program or divisiondirector negotiates with the lab director for a portionof the funds. But unlike many government labs,DOE facilities do not obtain their funds in one lumpsum. Instead, they receive money from hundreds ofseparate contracts with other DOE components—theheadquarters program offices-each of which speci-fies the task covered by its agreement. In this respect,the closest government analog is the NIF describedearlier.

DOE-sponsored work is funded with “no-year”monies, available until spent. This does not meanthat the labs have complete discretion in schedulingoutlays. DOE provides budget outlay guidance onwhen money shall be spent during the fiscal year,and DOE weapons labs must obligate DOE funds towithin 1 percent of allocation. But as one DOElaboratory executive observed, “it is the technicaldiscretion of the lab management (not accountingdiscretion) which is crucial.”

Other funds are obligated on a project basis by theend of the fiscal year, like those for DoD non-nuclearprograms, although some DoD money for R&D is2-year funding.

Consider how this system works at one weaponsfacility, Sandia National Laboratories. Its principalmission is research, development and engineering ofthe components of nuclear weapons (other than thenuclear explosive). In light of this mission, Sandiaexecutives regard their technical programs as havingtwo components: a technology base (basic andapplied research, computing, analytic techniques,advanced components) and deliverables (materialsfabrication, system design, quality assurance, stock-pile surveillance, nuclear safety). It is this twofoldmission that drives the program and determines thekinds of work Sandia will take on, particularly fromnon-DOE organizations.

For its purposes, Sandia’s no-year budget author-ity has two advantages. First, it enables the lab to letcontracts beyond the current fiscal year; and second,it allows long-term planning, even though DOE willdirect the lab through budget outlay guidance onwhat may be spent in a given year. Beyond that,Sandia officials can view their funding in differentways. In terms of sponsorship, DOE defense-relatedfunding in fiscal year 1987 accounted for 60 percent

Chapter 5---The Management of Defense Department Laboratories ● 79

of total operating funds, with other energy-relatedwork accounting for between 9 and 10 percent. Theremainder of Sandia’s funds came from reimbur-sable work from outside organizations—the impor-tant category of “work for others.”

Sandia’s policies on work for others follow DOEguidelines. Briefly, Sandia will not undertake workif it interferes with DOE weapons programs. Even ifresources are available, Sandia will not commencework unless it meets several criteria: The work mustbe of national and technical importance, match thelab’s mission and capabilities, avoid competitionwith the private sector, and complement existingDOE programs with integrally related work. WhereSandia participates in reimbursable programs, itincorporates DOE’s policy of full cost recovery.Sandia will seek to recover all costs including labor,direct charges, overhead (the lab charges the samerates to DOE and outside organizations), and generalpurpose equipment.

Like the other two weapons laboratories, Sandiaalso applies a surcharge-a tech base ‘‘tax” on allwork for others—that it uses to fund new, long-rangeresearch. At Sandia the tech base tax currentlysupports 70 people, most of whose work runs for upto 3 years. Note that this taxis only a portion of whatSandia spends on tech base work. According to DoDfunding categories, approximately 8.4 percent ofSandia’s 1988 budget went for 6.1 work and another17.4 percent for 6.2, or exploratory development.34

Thus, Sandia is effectively spending just over aquarter of its $1.1 billion budget on tech base-a farhigher amount than any DoD laboratory or engineer-ing center, save the Naval Research Laboratory,spends.

The major difference between DOE and DoDpolicy on work for others is that the DOE multipro-gram laboratories consider it a normal and desirablepart of their missions, while the latter does not. ForDoD, work for others—primarily non-defense workfor civilian agencies—is a distraction from the labs’missions and to be confined within narrow limits.For many years, DoD has had a policy of limitingsuch work to 3 percent of professional staff-years atindividual laboratories. Since DoD labs are con-strained by total personnel ceilings and are not

allowed to keep revenues for work for others, anywork done for external users comes directly at theexpense of their DoD clients. At the DOE labs, bycontrast, work for external agencies is much moreopen-ended: up to 20 percent of operating budget forEnergy Research labs, and as much as 30 percent forthe weapons labs.

This raises a fundamental question about themissions of the multiprogram labs: Why are they soeager to diversify? The easy answer is that asself-consciously “national” facilities, the laborato-ries regard diversification as an essential part of theirmission. But there is more to it than that. Thesefacilities have the preconditions for successfuldiversification. The first is the presence of secondparties willing to sponsor a laboratory’s venture intonew fields, just as industry sponsored Sandia’s workin drilling technologies, or Du Pent worked withArgonne National Laboratory on neutron diffractionstudies of catalysts, or SDIO funded work at LosAlamos in directed-energy weapons.

Next, lab executives believe that while theirorganization’s mission remains relevant, currentprograms do not exhaust the organization’s capacityto carry it out. And not least, there are fewinstitutional barriers to prevent laboratories fromtaking abroad view of their missions. Here, DOE hasplayed an important part by its policy of permittingwork for others, bringing in outside scientists andengineers for advice and joint ventures, and improv-ing conditions for cooperative work. Indeed, theremoval of obstacles may accomplish more thanwell-intentioned, but largely fruitless, efforts tostimulate two-party ventures.

This philosophy has implications for the defensetech base. As funding for nuclear weapons shrinks,DOE laboratory executives want to involve theirorganizations more closely in nonnuclear defensework. Diversification protects existing jobs and theability to hire fresh graduates. Their laboratories, sotheir argument would run, are already working inthese areas and have the experience to move intorelated fields. DoD funding for nonnuclear work isactually growing much faster than DOE funding is;at Lawrence Livermore, DOE funding betweenfiscal years 1982 and 1986 increased by 34 percent—

sA~fomation supplied by Sandia budget and program officers.


a real annual growth rate of 1 percent—DoDfunding, by 256 percent.35

The labs can bring their enormous resources tobear on the most important technical problems; theirnondefense work often has defense applications; andmuch of the technology that the weapons labs havedeveloped for SDI can be transferred to tacticalbattlefield problems. Further, the enormous comput-ing power at the labs—Los Alamos alone hascomputer power equivalent to 60 Cray-ls—is aresource for expanding the defense tech base in amuch more sophisticated way.

In sum, the DOE’s multiprogram laboratoriesmay serve as one (not “the”) alternative model tofacilities owned by the government and operated byits own employees. They have avoided the rigidityof government personnel classifications and much(though not all) of its regulatory apparatus, and theyhave benefited from DOE’s level-of-effort funding.They have the critical mass to move on several frontssimultaneously—although their size, as will be seen,may be a double-edged sword. The final section ofthis chapter examines the relevance of the DOE’sGOCO facilities, and comparable federally fundedR&D centers, to the problems of military laborato-ries.

SUMMARY AND CONCLUSIONS

Growing dissatisfaction with the operations ofDoD labs has led to proposals that some of themconvert to a GOCO status. In substance, this is whatthe DSB tentatively proposed for some labs in its1987 summer study.36 And in one sense, certainparts of DoD might accept such a transition. TheServices have long relied on outside laboratories forsophisticated exploratory work. One thinks of theestablishment of the Aerospace Corporation andLincoln Laboratory as contract research centers forthe Air Force, and the reluctance of the Navy’sStrategic Systems Program Office to use navallaboratories in developing the Fleet Ballistic Missilein the 1950s and 1960s. Since the early 1970s, DoDin general and the Air Force in particular have

moved to reduce the proportion of basic andexploratory research carried out by governmentemployees, with the results noted in OTA’s earlierSpecial Report on the Defense Technology Base.37

To a degree, Service skepticism about the value oftheir own laboratories becomes a self-fulfillingprophecy.

The ultimate justification for converting a gov-ernment facility to contractor operation is that itmore effectively provides the government with aproduct or service, while ensuring that inherentlygovernmental functions are carried out by civilservants. The remaining sections of this chapterweigh the virtues and drawbacks of this approach, inlight of what is known about the operation of DOE’snational laboratories.

Do contractor-operated facilities have greatermanagement flexibility than in-house govern-ment facilities? What are the advantages anddisadvantages, to the government and its operat-ing contractors, of GOCO arrangements?

The evidence is unequivocal in personnel man-agement but ambiguous elsewhere. Clearly, theDOE laboratories have much greater freedom thanDoD facilities to hire directly from the universities,to pay salaries comparable to what industry and theuniversities pay for comparable positions, and tomove people through the organization with relativefreedom. Because the laboratories’ personnel sys-tems reflect those of their operating organizations,they tend to be less bureaucratic and more attuned tomarket conditions than the generality of governmentcenters.

Some of this flexibility carries over into budget-ing and program management. It should be notedthat a significant portion of the labs’ funding is fortech base work and that, within broad guidelines,much of their manpower is earmarked for work forothers. Much of this work is, in a sense, diversifica-tion within the laboratory’s primary mission, ratherthan outside it. Thus at Los Alamos a largeproportion of work for others is sponsored by DoD,although some of it, as in laser technology, may have

W-J.S. Gener~ Accounting Office, op. cit., footnote 28, P. 13.

s~Defense Science Board, op. cit., footnote 1.

STU.S, Congress, Office of TechnoloW As=sment, “Ch, 4—Managing Department of Defense lbchnology Base Programs,” in The DefenseTechnology Base: )ntroducrion and Overvie# Special Report, OTA- ISC-374 (Washington, DC: U.S. Government Printing Office, March 1988).


important commercial applications. There are alsoprograms, like Lawrence Livermore’s work on insitu coal gasification, which grew out of AECresearch into the peaceful uses of nuclear explosives.

Clearly, the labs benefit from a managementstructure that enables the government to achieve itsends through a quasi-industrial system. What theoperating contactors derive from this arrangementis less clear. At one extreme, AT&T, in runningSandia, and Du Pent, in operating the SavannahRiver Plant, are essentially working pro bono.38 Atthe other, Martin Marietta is operating Oak RidgeNational Laboratory for commercial reasons. Itwants the award fee, it wants access to Oak Ridgepersonnel, and it wants access to technology—although Martin Marietta gains access to technologydeveloped at Oak Ridge on terms no better thanother corporations receive.

In an intermediate category are the labs operatedby universities: Los Alamos, Lawrence Livermoreand Lawrence Berkeley by the University of Califor-nia; Argonne by the University of Chicago; andBrookhaven by Associated Universities, Inc. Al-though the University of California receives amanagement fee for operating its laboratories, this isnot the main reason for the long-term relationship ithas had with AEC and DOE. From the University’sperspective, the laboratories enable it to do one ofthe things it exists to do-research. The laboratoriesoffer matchless opportunities to do “big science, ”to use unique facilities, and to develop researchideas. At some university-operated laboratories, asizable number of professional staff hold jointappointments, while many graduate students takesummer jobs that ultimately lead to full-time posi-tions. In these and numerous other ways, theuniversities gain at least as much as they put intorunning the laboratories.

There are, however, three disadvantages to theGOCO arrangement as DOE has adopted it. Thefirst, the sheer size of the Energy weapons laborato-ries, was not inherent in the GOCO status. Rather, itstemmed from the Atomic Energy Commissioners’

decision to make the laboratories full-spectruminstitutions tied to the production facilities. Al-though this arrangement worked well for manyyears, it became more and more difficult formanagement to stay intellectually on top of institu-tions of the size of the weapons labs. All of themhave now placed their own ceilings on institutionalsize, although this owes as much to the constraintsof Gramm-Rudman-Hollings, and the likelihoodthat arms negotiations will lead to major changes inprograms, as it does to a belief that a givenlaboratory has reached its natural limit.

Another problem with GOCOs is a certain lack ofaccountability. True, the operations offices aresupposed to oversee the labs and production facili-ties, but evidence is mounting that the oversight hasnot gone far enough. Perhaps the evidence isstronger at production facilities, like the problemswith reactors and nuclear wastes at the SavannahRiver and Rocky Flats Plants, than at the laborato-ries themselves. Weapons labs like Lawrence Liver-more and Los Alamos oversee each other to someextent; this competition does not exist in theproduction sector. What seems to have developedover many years is a relationship between thegovernment and the operating contractor, withvirtually no continuing external oversight since thedemise of the congressional Joint Committee onAtomic Energy in the mid-1970s.

This leads to the third problem, the abdication oftechnical responsibility by the government. Becausethe AEC elected to contract out almost all of itstechnology development, it happened that virtuallyall of the scientific and engineering expertise residedin the laboratories, with the headquarters organiza-tion at a real disadvantage in evaluating the laborato-ries’ technical programs. This did not mean thatheadquarters or the operations offices could notoverrule something the labs wanted. They could—but for administrative, financial, and political rea-sons, not technical ones. Just as AEC turned overresearch and development to outside organizations,so it also turned over much of its evaluation to

s~[n ]i@t of Du ponl’s decision tO withdraw as operating contractor, the DOE has awarded a contract 10 Westinghouse to operate Savannah River whenDu Pent’s contract expires in 1989.


outside advisory panels. In this respect, DOE is alineal descendant of the AEC.39

The experience of the DOE weapons laboratoriesconfirms the thesis that “the technical capability todo something is often the trigger that causes theestablishment of a national policy based upon thatcapability. ”40 This is true of the DOE weapons labsin a way that it is not of any DoD lab, except for theNaval Research Laboratory and a few engineeringcenters. And yet, because neither AEC nor DOE hadany independent technical organization of their own,they had to defer to the labs on the technical meritsof strategic weapons. It may well be that thedevelopment of many weapons programs or thecreation of a civilian nuclear power industry wouldhave occurred very differently had AEC sponsoredan in-house organization to evaluate its contractors’proposals.

Do GOCOs tend to become more like govern-ment labs, since they face the same pressures toaccount for the use of public funds? To put itdifferently, do GOCOs develop analogs to Fed-eral policies in acquisition, information manage-ment, and personnel, thus losing the flexibilitythat contractual status confers?

There does indeed seem to be a rule that, withtime, contractor-operated and government-operatedlaboratories tend to become more like each other,because both are accountable for their use of publicfunds. In practice, no Federal agency has beenwilling or able to give its contractor-operatedfacilities complete independence to set policieswithin the framework of their missions, even whenthere were no specific regulations to prevent this.Nor does DOE’s delegation of “inherently govern-mental functions” to the national laboratories con-tradict this. An agency can delegate those functions,while micromanaging its facilities in every otherrespect.

As asserted by the Deputy Comptroller General(quoted earlier), the government’s position is that

even when a contractor-operated facility is exemptfrom certain regulations, it must still comply withthe “Federal norm. ” For instance, the national labsmay not be directly subject to the Federal Acquisi-tion Regulation; indirectly, they comply with itthrough regulations that DOE, their prime sponsor,imposes, Again, independent centers like APL needspecial waivers exempting them from full and opencompetition; must be prepared to respond to outsideaudits from different agencies; and must fine-tunetheir accounting systems to reflect the separate typesof appropriations from which their funding origi-nates. All of this adds to administrative overhead andto the demands on technical staff to shield bench-level workers from government paperwork.

GOCO facilities react to these demands in severalways. One is to comply with the spirit of governmentpolicy without being bound by its letter. This is whysome DOE labs voluntarily synopsize their procure-ments in the Commerce Business Daily, reserveprocurements for small businesses, and try to limitthe number of sole-source contract awards. Anotherapproach is to justify a deviation from Federal policyfor special reasons, as the Energy labs do when theyapply for authorization to purchase supercomputers.

For all that is known about the GOCO facilities,it is surprisingly difficult to acquire quantitativeinformation about their operations, partly becauseDOE laboratory contractors are reluctant to supplythe information, and partly because DOE tends totreat it as proprietary. The little that is knownsuggests that the advantages of a GOCO operationmay be overrated. True, at Los Alamos, according toa government source, the contract staff can annuallyhandle some 45,000 small purchases—those under$5000----over the phone. However, anecdotal evi-dence suggests that lead times at some of the Energylabs are at least as great as those at the larger militarylabs, and in some cases greater. To the extent thatthis is true, a GOCO institution is no guaranteeagainst micromanagement and the kind of inflexibil-ity found in government organizations.

WSc)mc ~b~ewers have noted fllal ~D suf{”ers from tie same prob]cm, in ~hat [he headquarters Org:lnixaliOnS that SpOnsOr tic work of in-houseLlaboratories may also lack the technical expertise to judge the pcrforrnancc of those labs. The difference is that DoD cxccutivcs did not dclibcralcly turnover almosl all of the military laboratories and related R&D opcrtilions [o outsi& organi~ations, as the Atomic Energy Commission did with its labs,which were contractor-operated from the start.

~{)Mark and ~>vine, op. cit., fo(lmotc 21, p. 221.

Chapter 5—The Management of Defense Deptzrtment Laboratories ● 83

How and in what ways do GOCOs differfrom government-operated laboratories in theirability to transfer the results of their 6.1,6.2, and6.3 programs to user agencies?

Again, the GOCO DOE laboratories show a muchgreater ability to move from basic research down thespectrum of technology development. DOE GOCOsare closer to the ultimate application than DoD labsare. Specifically, the weapons labs’ responsibilityextends from basic research to the retirement ofweapons in the national nuclear stockpile. Asmentioned above, the labs are only part of avertically integrated complex that extends frombasic research through the production of weapons-grade materials to the assembly of the weapon itself.In DoD, by contrast, the process by which technicalwork at the laboratories eventuates in operatingsystems is much harder to trace.

The very depth of expertise at the DOE weaponslaboratories has two notable effects. The first is theircommitment to a substantial amount of basic re-search and advanced exploratory work. Where aDoD facility might do only enough exploratoryresearch to keep abreast of technology—keeping, asit were, a window on the world—the nationallaboratories tend to be more aggressive. They canafford to be: Where expertise at a DoD lab might goto a depth of two or three persons, at the national labsit can encompass an entire branch working inleading-edge technologies. Second, weapons-related work and nondefense programs cannot besegregated in terms of research. There is a constantgive-and-take in these areas that leads to new ideasand new applications. Thus, the Los Alamos MesonPhysics Facility (LAMPF) was originally designedin 1967 for research into the structure of the atomicnucleus. That research led, a decade later, to thespinning off of a separate group, leading in turn toneutral particle beam work that became a coretechnology for SDI.

In sum, the national laboratories have theresources to develop aggressively their portion ofthe defense technology base. In their operatingagreements, DOE specifically recognizes basic re-search as a function that needs no extraneous

justification. Beyond that, the interplay of technolo-gies, the respect the university community has forthe laboratories, and the tech base tax that the labsplace on work for others, give them a markedadvantage over the DoD labs in technology develop-ment.

What mechanisms can both kinds of institu-tions use to diversify within their basic missions?

Because the DOE laboratories have construedtheir missions in the broadest way, they havemanaged to diversify within, rather than outside,those missions. A more fundamental differencebetween Energy and Defense laboratories is that theformer consider such diversification an integral partof their missions. The latter have diversified inresponse to directives from organizations external tothe laboratories-the Service commands or OSD.Thus, the Army Laboratory Command developed astrategy for investing in next-generation and “no-tional” systems; and the Air Force sponsoredProject Forecast 11 as part of its tech base strategy.Much of the military’s tech base work will occuroutside its own laboratories, while the reverse is truefor the DOE.

Given the capabilities of the DOE weapons labs,it would be surprising if their primary mission didnot spill over into related areas. Siegfried Hecker,Director of the Los Alamos National Laboratory, hasput it succinctly. At the weapons labs, “nondefensebasic and applied work is done in an environmentoriented toward national defense. Thus, multiplepayoffs are common and occur quite naturally.While contributions are made to the solution ofnondefense problems and significant additions aremade to the international scientific knowledge base,considerations of potential defense applications ofresearch results come as a natural by-product. ”41

This approach has led the DOE laboratories tomove increasingly into nonnuclear defense work.Although the DOE technology base developedseparately from that of DoD, the two are converging.Here, too, Los Alamos has moved aggressively:applying (as mentioned before) LAMPF to theneutral particle beam program for SDI; working withthe Army, the Marine Corps, and DARPA on the

qlslgfricd Hecker, Las Alamos National Laboratory, “Review of Managmncnt of the Nation’s Defense Twhnology Base, ” testimony at hearingsbefore the Subcommittee on Defense Industry and lkchnology, Senate Armed Services Committee, Mar. 18, 1988, p. 15.

&# ● Holding the Edge: Maintaining the Defense Technology Base

armor/anti-armor program; and investigating theuses of free-electron lasers for ground- and space-based weapons. Given the Energy labs’ computingpower, they can apply sophisticated modeling to theproblems they choose to attack.

If the experience of the DOE laboratoriesdemonstrates anything, it is that the greater the depthof expertise, the greater the ability to apply it toproblems pertinent to the organization’s mission.Most DoD laboratories lack this ability to movequickly into new areas, first, because most military“laboratories” are really engineering centers; sec-ond, because their charters restrict their freedom ofaction in any case; and third, because they lack staffand facilities comparable to those of the nationallaboratories. It will take fundamental changes beforeDoD laboratories can make greater contributions tothe defense technology base. Such changes couldinclude closing some facilities, consolidating othersinto weapons development centers, or convertingsome laboratories to GOCO facilities. This thirdoption is considered below.42

Can the relations of government laboratoriesto their sponsor agencies be placed on a quasi-contractual basis comparable to those of GOCOs?Are any government labs considering such arrange-ments?

It is possible to imagine an arrangement underwhich government laboratories could take on theflexibility of GOCOs while remaining government-operated. For the sake of argument, a laboratorycould combine the China Lake personnel systemwith the freedom NIST has to seek support fromFederal customers, an NIF-style funding scheme,and an approach like NASA’s effort to turn over itssupport functions to contractors-in fact, just whatthe DSB had in mind when it recommended thatDoD sponsor a laboratory management demonstra-tion. An organization run along those lines wouldhave a degree of freedom that few governmentfacilities now enjoy.

But such incremental improvements might not gonearly far enough, The China Lake system does notmake government salaries more competitive withthose of the private sector. Demonstration projectsrarely have unambiguous results; and as China Lake

shows, they tend to remain insulated from othergovernment establishments, perhaps out of fear thattheir example might metastasize through the system.

Similarly, NIST’s freedom to take on work forother agencies or the standards community resultsfrom its unique mission to support the U.S. technicalinfrastructure. And the contracting-out of supportservices raises legal and political issues, such as howone distinguishes between services like running acafeteria and providing scientific computing serv-ices, which is more mission-related. In other words,when do such services impinge on governmentalfunctions? How can one avoid the on-site supervi-sion by government employees of contractors,which is illegal? And how can an agency avoid theinefficiency of converting base operations, functionby function? In any case, such hybrid facilitieswould remain bound by government policies inprocurement and accounting that would attenuatethe freedom gained in other areas.

A single-step conversion to GOCO status couldavoid these problems while bringing others in theirtrain. However, all the GOCO institutions describedearlier have enjoyed that status since their inception.If a Defense laboratory were to convert to GOCO, itwould be the first instance of an existing facilitytaking that route. Because it would be unprece-dented, a changeover would be very complex. Therewould be numerous issues to be resolved along theway: changeovers in employee benefits, relationswith the Office of Federal Contract CompliancePrograms, the need to restructure its procurementauthorities, and the like. But the main issue confront-ing such an institution would be the nature of itsrelationship with its sponsoring agency. Under thenew arrangement, the laboratory might be operatedby an industrial contractor, a university, or even thelab’s senior managers acting as a corporate body.

Alternatively, a laboratory could elect a hybridstatus-contracting out all support functions, whileconducting R&D as a Federal entity. A few NASAfacilities, like the Johnson Space Center, haveadopted such a mixed system, with all supportfunctions turned over to a prime base supportcontractor. This has several advantages: for exam-ple, the contractor has direct-hire authority for

Q-@n the firs( two options, see ch. 7 below.

Chapter .5--The Management of Defense Department Laboratories ● 85

professional staff if their work falls within thecontract’s scope, and it can pay them market rates.But the legal questions—the demarcation betweencommercial and inherently governmental functions—remain exceptionally complex.

What kind of DoD laboratory is the bestcandidate for conversion to GOCO? While anyfederally operated laboratory would benefit fromfewer restrictions on operations, it seems that only acertain kind of institution is a suitable candidate forGOCO status. It should already have a substantialinvestment in tech base work; it should be able todemonstrate that its operating problems cannot besolved by minor variances from regulations; and itsimportance to its DoD customers should be such thatthey have a stake in improving its operations. In thislight, NRL and some of the larger naval R&Dcenters would appear to be suitable candidates forGOCO status.43

A military laboratory taking this route wouldhave problems to resolve that the DOE laboratorieshave never faced. One would be determining theorganization for which it would be working. It mightbe one of the Services, a Service command, or even

OSD, as is the case with some FFRDCs. Anotherconsideration is that such a conversion could well beirreversible. Because conversion to GOCO could noteasily be undone, making the transition successfullywould require a strong commitment on the part oflaboratory employees as well as DoD. Conversion toGOCO could not occur without the full support ofthe relevant Service, as well as OSD.

Finally, in return for the benefits of GOCO, thelaboratories would also give up something. The newstatus would mean weaker ties with Defense organi-zations, and perhaps a tendency on DoD’s part totreat the reorganized institution as simply anothercontractor. Further, the preceding analysis of DOElaboratories suggests that the benefits from a GOCOoperation tend to diminish over time. In short,everything would depend on the sponsor’s willing-ness to give the laboratory the freedom to strike outin new directions, and to take on work for others thatdrew on its capabilities. Whatever organizationassumed the operation of the laboratory would haveto have specialized management skills that wouldjustify turning the lab over to an outside contractor.

dqon tie c~cumstmces that might justify conversion to GOCO, see ch. 7 below.

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Holding the Edge: Maintaining the Defense Technology Base