Acquisition Reform Project Team Report - Team Meetings The Project Team held ten meetings for agenda…

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  • Acquisition ReformProject Team Report

    July 2008Ministry of Defense, Japan

  • Background 1

    Project team meetings 2

    Countermeasure to problems regarding commercial import 3

    Life-cycle cost management 4

    Cost reduction goal 5

    Incentive contract 6

    Promotion of outsourcing 7

    Measures related to Foreign Military Sales 7

    Acquisition based on joint operation 8

    Evaluation of research & development program 9

    Central and local procurement 10

    Internal division of labor in equipment selection 11


  • Background

    Chaired by Minister for DefenseTwo interim reportsJuly 2004, March 2005

    Establish Acquisition Reform Promotion Project Team (Oct. 2007)

    With those change, need for further promotion

    of Acquisition Reform

    * More sophisticated and complex equipment increase unit price. * Increasingly severe fiscal conditions and rising unit price decrease volume of procurement; further increase unit price, cause vicious circle of rising cost.

    Need for cost reduction.

    * More transparency and impartiality is needed.

    * Contract based on negotiation and classified information

    Need for accountability.

    Sept 2003 Comprehensive Acquisition Reform Committee was organized.

    Problems regarding import;Padding with forged foreign manufacturers quotation, etc.

  • Project Team Meetings

    The Project Team held ten meetings for agenda given below.

    1st meeting 18 Oct 2007 Ministers Directive for promotion of Acquisition Reform2nd meeting 26 Nov Issues about trading companies in commercial import3rd meeting 13 Dec Goal for cost reduction (1)

    Life-cycle cost management4th meeting 19 Dec Goal for cost reduction (2)

    Immediate measures for problems about commercial import Review of Aircraft Selection process

    5th meeting 26 Dec R&D related issues6th meeting 18 Jan 2008 Incentive contract

    Third party audit for local procurement7th meeting 30 Jan Measures for problems related to problems in Import

    Further Improvement of Foreign Military Sales8th meeting 15 Feb Promotion of outsourcing

    New evaluation process for R&D 9th meeting 10 Mar Strengthening life-cycle cost management

    Review of central and local procurementAcquisition based on joint operationInternal division of labor in equipment selection

    10th meeting 28 Mar Discussion on Report draftPublication of the Report

  • Countermeasure to Problems regarding Commercial Import

    * New special contract clause regarding submission of the original quotation and/or invoice issued by foreign manufacturers and direct inquiry to foreign manufacturersFY 2008

    * Increase of Equipment Procurement and Construction Office EPCO import liaisons in the United States from 3 personnel to 10FY 2008

    Strengthening Cost Survey Function

    * Create environment accessible for foreign manufacturersguidance in English, briefing to foreign manufacturers, etc.

    * Study and compare various contracting method including one with partial outsourcing FY 2008

    Direct Contact with Foreign Manufacturers

    * Establish section which comprehensively handles commercial import cases in EPCOFY 2009

    * Employ professionals and experts from outside Certified Public Accountant, ex-trading company employeesetc.

    Reorganization of EPCO

    * Double penalty for padding from FY 2008Severer Penalty for padding

  • Life Cycle Cost Management

    * LCC(Life Cycle Cost) : Defense equipment cost for all through the life cycle from concept phase to disposal phase

    * LCC management has been done partly for some defense equipment.

    Current Situation


    Actual LCC

    ProductionConceptio Disposal

    Estimated LCC




    DisposalDisposal Disposal Disposal Disposal Disposal

    Operation Production



















    LCC estimate in each phase

    The end of FY: 2007 LCC management procedure and common calculation method JFY 2008: Trial LCC ManagementJFY 2009: LCC Management

    * Estimate LCC at the beginning of development and production

    * Annual LCC report to the Minister of Defense

    * Intra-organizational coordinating framework (ref. Integrated Project Team / IPT)

    * Establish cost management section in EPCO FY 2009

    Measures to be taken



    OperationSupport Operation




  • The first comprehensive reduction goal;15 % cost reduction over 5 years from this FY to FY 2011

    Cost Reduction Goal

    Scope;Equipment-related projects through life-cycle covering R&D, procurement, and operation and maintenance1.8 trillion yen for FY 2007

    Measures; Various efforts to make each project more cost-effectiveCOTS, Blanket procurement, Review of maintenance method, etc.


    Numerical Goal; compared to FY 20069 %; at FY 2009 (the end of current Mid-term Defense Program)

    15 %; by FY 2011

    The amount of cost reductionCost without measuresCost with measures Cost reduction rateCost reduction amount / Cost without measures

  • * New Incentive Contract will be studied and introduced in FY 2008.* Include other reduction efforts those related to investment, management, etc. not limiting technical proposal* Add flexibility in reward distribution rate between government and private sector eg. different rates for each fiscal year* Other changes to be studied

    Incentive Contract

    New Incentive Contract

    * Established in FY2002 to further motivate companies to reduce cost associated with defense equipment* In case of cost reduction by new technical proposal, the company can accept half of the reduction amount for 5 years. Still only two cases

    Current system

  • Promotion of Outsourcing

    Continue efforts centering on acquiring cost information

    Foreign Military Sales FMS; U.S. Government provides equipment to the eligible countries based on Arms Export Control Act. To deal with problems such as insufficient cost information;Some actions have been taken ; Adopting Accelerated Case Closure Procedures ASSP, opening Interest Bearing AccountIBA, acquiring cost breakdown information, etc.

    Non-traditional method for outsourcing will be more actively explored. eg. PFI: Private Finance Initiative

    * Defense Ministry had done outsourcing to the extent not hindering Self-Defense Forces SDFmission.* Scope is being extended in line with across-the-government reform to cut labor cost.

    Future Course of Action

    Current Situation

    Measures related to Foreign Military Sales (FMS)Current Situation

    Future Course of Action

  • Under the concept of joint operation, the following measures have been taken across different services.

    * Adjust specifications between equipment* Common equipment* Integration of each JSDFs command systems and other information systems

    Acquisition based on Joint OperationCurrent Measures

    * Defense buildup based on joint operationPromote defense buildup tailored to Joint Operation in areas such as rescue, medic, transport, surveillance

    * New framework for coordination Establish framework of relevant personnel including those from 4 Staff Offices of SDF for comprehensive discussion and coordination

    * R&D based on Joint OperationEvaluation of R&D from the viewpoint of joint operation; R&D for vehicles and guided missiles that share components and parts across services

    * Procurement and logistics management based on joint operationSystems to share inventory and specification information across services

    Measures to Be Taken

  • Evaluation of R&D ProgramNew Evaluation System on R&DNew Evaluation System on R&D

    * Evaluate R&D project from the viewpoint of Acquisition Reform (project objectives, applied technologies, cost, schedule, etc.)* Modify project according to evaluation* Evaluation reflected in defense buildup process

    Advantage; Cost sharing, Risk reduction, Scale meritDisadvantage; Difficulties in coordinating requirement and work/task sharing

    Risks associated with change in the other countrys plan

    * Further cooperation with the United States New R&D projects, Engineer exchange, etc.* Promotion of R&D cooperation with countries other than the United States in dual-use technology areaCooperative test, Exchange of personnel and Information, etc.)

    Measures to Explore Possibility of International R&D Cooperation

    Promotion of Technical Exchanges

    Problems on legacy R&D evaluation;Insufficient evaluation in terms of managing development of production costs, late sharing of information evaluation within MoD including political appointeesHigher level evaluation of projects at the earlier stage of budget processEstablish Technology Evaluation Committee by Parliamentary Secretary for Defense in FY 2008

  • Central and Local Procurement

    Ministers approval for negotiated contract with high valueThe approval of Minister of Defense required for high value negotiated contract (Currently, the ministers approval is obliged only to central procurement.) (FY 2008)

    Audit by third-party organizationExpand the scope of audit by Tender Audit Committee in each Local Defense Bureau to monitor equipment procurement (Currently, the Committees scope is limited to construction.) FY 2008

    Measures for more transparency in Local Procurement

    Central Procurement: procurement by EPCOLocal Procurement: procurement by other agents of Defense Ministry, such as SDF units

  • Internal Division of Labor in Equipment Selection

    * Different job allocation between Defense Policy Bureau and Finance/Equipment Bureau, depending on the types or procurement methods of equipment

    * Need to improve transparency in decision making on selection of equipment

    * Exhaustive decision making process due to examination in details

    * Regarding next rescue helicopter or other appropriate equipment;

    Explore more transparent and effective procedure in selection of equipment

    Trial job allocation:Bureau of Defense Policy in charge of capability/requirementBureau of Finance and Equipment in charge of equipment selection

    Establish trans-organizational working team

    * Review of Aircraft Selection Process

    Current Issues

    Interim Action


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