Army Modernization: Army Futures Command Should Take Steps to Improve Small Business Engagement for Research and Development

The Army is modernizing its weapon systems to improve its ability to face near-peer adversaries. To consolidate and oversee these efforts, the Army established Army Futures Command. The command plans to work with small businesses to develop innovative capabilities through research and development activities.

GAO was asked how the establishment of Army Futures Command could affect small businesses that support research and development efforts. This report examines, among other objectives, how the command (1) engages with small businesses and coordinates with other Army organizations and (2) plans to track and measure the effectiveness of that engagement.

GAO reviewed the Army's internal analyses of its own modernization efforts; reviewed and analyzed policies and procedures on the command's small business engagement; and interviewed Army officials engaged in modernization efforts as well as two private companies selected because they facilitate Army's work with small businesses.

Army Futures Command, established in June 2018 by combining several existing Army organizations and expected to be fully operational in July 2019, is engaging with small businesses. The command considers small business engagement critical to its success and officials reported it intends to continue the engagement activities of the organizations that are moving into it such as conducting outreach and awarding contracts. The Army recognizes the importance of small businesses and has awarded $2.3 billion to hundreds of small businesses from fiscal year 2013 through 2017. The command is also taking initial steps to enhance small business engagement (see figure). Army officials noted that these new efforts are intended to address concerns raised by small businesses in working with the government, such as delays between initial outreach and entering into contracts.

However, the command has not fully leveraged other Army organizations that work with small businesses, such as the Army Office of Small Business Programs. According to command officials, they prioritized setting up the command structure and engaging with small businesses quickly, instead of focusing on coordination. The command has recently been working to improve coordination, but has not formally coordinated such as by establishing agreements with other Army organizations that have small business expertise. Doing so would help Army Futures Command leverage this past experience and avoid missing opportunities to engage with these companies and access innovative research and development.

The command does not track how frequently or in what ways it engages with small businesses for research and development across all command components. Similarly, command officials stated they have considered performance measures to assess the effectiveness of their engagement efforts, but have not yet developed command-wide measures or a plan to assess effectiveness. Tracking and measuring engagement would help ensure the command obtains quality information that may help the Army evaluate, and potentially enhance, its small business engagement

GAO is making three recommendations including that the Army Futures Command coordinate with relevant Army organizations on small business engagement efforts for research and development; systematically track its small business engagement; and develop command-wide performance measures and a plan to use them to assess the effectiveness of its small business engagement. The Army concurred with all three recommendations.

The Army is enhancing its capabilities and upgrading its weapon  systems—referred to as modernization. The Army has determined that  modernization is essential to better position itself to deter or defeat near- peer adversaries—defined as countries with advanced technological  capabilities capable of waging a large-scale conventional war with the  United States.

The Army Futures Command was established in June 2018 to oversee  modernization, and develop requirements and technology to achieve the  modernization goals of the Army. The command intends to accomplish  this, in part, through increased access to innovation from small  businesses. Small businesses, a vital part of the defense industrial base,  can be a source of innovative capabilities and emerging technologies to  support the warfighter. According to a report from the Congressional  Research Service and the Report of the Advisory Panel on Streamlining  and Codifying Acquisition Regulations, also referred to as the Section 809  Report, small businesses are among the most cost-effective performers  of research and development in bringing new products into the  marketplace. From fiscal years 2013 through 2017—prior to the  establishment of Army Futures Command—the Army obligated about  $2.3 billion on contracts to small businesses in support of research and  development efforts.

You asked us to examine how the establishment of Army Futures  Command could affect small businesses that support research and  development efforts. This report (1) describes what analyses, if any, the  Army conducted to determine the effect of its modernization initiatives on  small businesses; (2) describes how Army Futures Command is engaging  with small businesses to support research and development efforts, and  assesses how it is coordinating with other relevant Army organizations;  and (3) assesses how Army Futures Command plans to track and  measure the performance of its engagement with small businesses to  support research and development efforts.

To describe the analyses the Army conducted to support its  modernization efforts and the potential effect these modernization efforts  could have on small businesses, we collected and reviewed available  studies and analyses the Army conducted on modernization efforts,  including those focused on the creation of Army Futures Command.

To describe how Army Futures Command is engaging with small  businesses to support research and development efforts, we reviewed  policies, procedures, and guidance from the Department of Defense,  Department of the Army, Army Futures Command, and other relevant  Army offices on small business engagement. We reviewed relevant small  business statutes, sections of the Federal Acquisition Regulation, as well  as Defense and Army supplements to the Federal Acquisition Regulation,  to understand the framework for small business participation in support of  research and development efforts. We collected and analyzed supporting  documentation on Army Futures Command’s engagement with small  businesses including its roles and responsibilities, outreach efforts, and  award documentation, as well as those of its subordinate components. To  assess how Army Futures Command coordinates with other Army  organizations, we reviewed policy documentation, such as a  memorandum of understanding on coordinating contract support. We  assessed the information we collected against Federal Standards for  Internal Control related to organizational structure, reporting lines, and  using quality information.

To assess how Army Futures Command is planning to track and measure  its engagement with small businesses, we reviewed statutes, regulations,  and policies relevant to the Department of Defense and Army  engagement with small businesses. We also reviewed documentation on  planned tracking efforts and performance measures from the command,  and documentation from organizations transitioning to the command to  determine how those organizations previously monitored and evaluated  their small business engagement. We assessed the information we  collected against Federal Standards for Internal Control related to  monitoring activities, using quality information, as well as defining  objectives and evaluating results.

To address all of the objectives, we interviewed officials at various Army  offices to understand how the new command plans to engage with small  businesses. This included Army Futures Command and the organizations  transitioning to Army Futures Command, the Office of the Under  Secretary of the Army, the Army Office of Small Business Programs,  members of the Office of the Assistant Secretary of the Army for  Acquisition, Logistics, and Technology, and Army Contracting Command.  We also met with two private sector entities the Army works with to  coordinate outreach with small businesses. These entities have  experience in engaging small businesses for the private sector as well as  government programs, and they discussed with us the concerns and  challenges small businesses have identified to them in working with the  government. These views are not generalizable but provide perspective  on matters relevant to the Army’s efforts to engage with small businesses.  For more information on our scope and methodology, see appendix I.

We conducted this performance audit from September 2018 to July 2019  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

We previously reported that the Army began its modernization efforts— defined as efforts to enhance its capabilities and upgrade its weapon  systems—in the fall of 2017. As a part of this effort, the Army identified  six modernization priorities.  1.  Long-Range Precision Fires— focused on improving the targeting,  range, and lethality of, among other things, artillery and rockets.  2.  Next Generation Combat Vehicle—focused on developing manned  and unmanned combat vehicles with updated firepower, protection,  mobility, and power generation.  3.  Future Vertical Lift— focused on developing manned and unmanned  aircraft capable of attack, lift, and reconnaissance missions.  4.  Army Network— focused on developing a mobile system of hardware,  software, and infrastructure for reliable and secure communications.  5.  Air and Missile Defense—focused on improving capabilities for  protection against modern and advanced air and missile threats.  6.  Soldier Lethality—focused on improving capabilities, equipment, and  training for all fundamentals of combat including shooting, moving,  communicating, protecting, and sustaining combat operations.

We also reported that, to fund these priorities, in 2017 the Army realigned  over $1 billion in science and technology funding away from efforts that it  determined did not align with these priorities. The Army subsequently  announced plans to spend an additional $7.5 billion on these priorities  over the next 5 years.

Army Futures Command was formed less than a year ago and has not  finalized its structure. The Army established the Army Futures Command  in June 2018 to consolidate its modernization efforts under one entity and  it began initial operations in July 2018. Army Futures Command selected  Austin, Texas, as its headquarters location and began to integrate and  align resources and personnel. The new command headquarters includes  a number of administrative and functional offices that report directly to it,  not all of which are co-located with the command in Austin. Specifically:

Administrative offices are responsible for providing contracting  support, legal support, and small business engagement support to  headquarters. These offices are located in Austin, Texas.

Army Applications Laboratory is responsible for coordinating  outreach to businesses, including small businesses, for headquarters.  The Army Applications Laboratory is located in Austin, Texas.

Cross-functional teams are the eight teams responsible for  identifying capability needs and developing requirements associated  with the Army’s six priorities. The teams are located in different parts  of the country in areas relevant to their capability focus.

Medical Research and Development Command is responsible for  seeking and developing new medical technologies for use by the  Army. This command is in the process of transferring from Army  Medical Research and Materiel Command and is located at Fort  Detrick, Maryland.

In addition to these organizations, the command has three major  subordinate components, comprised of several existing requirements and  technology development organizations. Specifically:

Futures and Concepts Center is responsible for identifying and  prioritizing capability and development needs and opportunities. This  organization subsumed the Army Capabilities Integration Center— formerly part of Army Training and Doctrine Command—on December  7, 2018 and is located at Fort Eustis, Virginia.

Combat Capabilities Development Command is responsible for  conceptualizing and developing solutions for identified needs and  opportunities. This organization subsumed the Research,  Development, and Engineering Command—formerly a part of Army  Materiel Command—on February 3, 2019 and is located at Aberdeen,  Maryland.

Combat Systems Directorate is responsible for refining,  engineering, and producing new capabilities. The directorate is to  communicate with the program executive offices and program  management offices reporting to the Assistant Secretary of the Army  for Acquisition, Logistics, and Technology. The command is in the  process of establishing Combat Systems Directorate in Austin, Texas.

Army Futures Command is expected to become fully operational in July  2019, when its headquarters and its subordinate components are fully  staffed. Locations for components of the new command are shown in  figure 1.

According to Army Futures Command officials, as part of their  modernization efforts, they plan to coordinate with other existing Army  organizations. These include the Office of the Assistant Secretary of the  Army for Acquisition, Logistics, and Technology—the civilian authority  responsible for the overall supervision of acquisition and contracting for  the Army. They also plan to coordinate with Army Contracting Command,  which is the principle buying agent and provider of contracting support for  the Army and operates within Army Materiel Command.

As we previously stated, others have reported that small businesses are a  vital part of the defense industrial base and engaging with them can  produce innovative capabilities and emerging technologies to support the  warfighter. For the purposes of this report, engagement with small  business is defined as a range of activities including: initial outreach to  small businesses to identify companies that may have useful information  or ideas, information sharing on the Army’s capability needs, and formal  engagement including processes to enter into business relationships,  including contracts and other arrangements. The Small Business Act  requires federal agencies to establish annual goals that provide small  businesses with contracting opportunities to the maximum extent  practicable. Pursuant to the Act, the Small Business Administration  negotiates annual small business goals with federal agencies, including  the Department of Defense. A portion of the overall goals for the  Department of Defense is assigned to the various military components— including the Army—that have contracting authority. The Army Office of  Small Business Programs, responsible for enhancing Army contracting  opportunities for small businesses, then assigns portions of the Army’s  goal to its four major commands with contracting authority: Army Materiel  Command, Army Medical Command, Army Corps of Engineers, and the  National Guard Bureau. Army Materiel Command is the primary  command responsible for the execution and oversight of contracts for  Army Futures Command.

Historically, the Army has engaged with small businesses in a variety of  ways, including awarding contracts for various goods and services that  support the warfighter. Federal contracts, including those awarded by the  Army, are tracked in the Federal Procurement Data System-Next  Generation database. Using data provided by the Army from this  database, we identified over 4,500 contracts awarded to small businesses  for research and development efforts in the 5 years prior to the  establishment of Army Futures Command—fiscal years 2013 through  2017. The number of contracts awarded during this time period is  summarized in table 1.

We identified almost $2.3 billion in obligations to small businesses for  research and development from fiscal years 2013 through 2017, or about  half of the total amount the Army obligated for all research and  development contracts. The obligations for these Army contracts awarded  to small businesses for research and development are summarized in  table 2.

These contract obligations for research and development went to 1,815  small businesses throughout the United States from fiscal years 2013  through 2017. Figure 2 shows this information for each state as well as  the District of Columbia and Puerto Rico.

About half of the Army contract awards and obligations to small  businesses for research and development from fiscal years 2013 through  2017 supported two organizations—Research, Development, and  Engineering Command and Medical Research and Materiel Command— which have transitioned, or are in the process of transitioning, to Army  Futures Command. To support research and development efforts for  these two organizations, the Army awarded 2,948 out of a total 4,514  small business contracts, and obligated about $1.3 billion out of $2.3  billion from fiscal years 2013 through 2017.

In addition to the contracts discussed above, the Army can use other  arrangements to engage with small businesses. These other  arrangements include: agreements using other transaction authority for research and  development activities and developing prototypes;  financial assistance mechanisms including grants—which are used  when the principal purpose of the relationship is to transfer a thing of  value to the recipient to carry out a public purpose authorized by law,  and substantial involvement by the agency is not expected—and  cooperative agreements—which are also used to transfer a thing of  value to carry out a public purpose, but where substantial involvement  by the agency is expected; and  cooperative research and development agreements under which the  government and nonfederal partners may share resources and  increase the commercialization of federally developed technology.

Unlike contracts, the Federal Procurement Data System-Next Generation  database cannot be used to quantify engagement with small businesses  using these other arrangements. For example, the financial assistance  mechanisms, as well as cooperative research and development  agreements, are not generally tracked in the Federal Procurement Data  System-Next Generation database. In addition, while it is the  Department of Defense’s policy to report the use of other transaction  authority for prototype projects in the Federal Procurement Data System- Next Generation, the data for this reporting does not distinguish business  size. As a result, it cannot be used to quantify the Army’s engagement  with small businesses under this arrangement.

Army Did Not Conduct Analyses Specific to Small Business, but Army Futures Command Stated It Considers Small Business Engagement Important

The Army conducted several analyses related to its modernization efforts,  including those directly focused on the creation of Army Futures  Command. We identified the following key analyses the Army used to  support its modernization efforts:  In October 2017, Army reviewed its science and technology portfolio  and determined which investments contributed to the Army’s  modernization priorities and which might be curtailed or eliminated to  realign funding. According to Army officials, this review was focused  on identifying solutions to known capability needs, not on how small  businesses would be affected by the realignment of funds.

In early 2018, Army analyzed several options for the roles,  responsibilities, staffing, and organizational structure for the proposed  Army Futures Command. This analysis did not include an assessment  of how small business would be affected by its establishment.

In April 2018, Army completed a report on its modernization strategy  as mandated by the Congress. The report focused on warfighting  challenges, risks, costs, and acquisition timelines for fielding future  capabilities. It also included analyses of near-peer competitors,  operational requirements, strategic portfolio analyses, and capability  gaps. It did not include information on what role, if any, small  businesses would have in developing or supplying the means to close  capability gaps.

Multiple Army officials explained that they did not specifically analyze the  effect of modernization on small business as they anticipated continuing  their current level of engagement with these entities and perhaps  increasing it. Further, senior Army Futures Command officials stated that  they consider engagement with small businesses to be critical to their  modernization efforts as well as a key aspect of their mission. They also  noted that the command’s headquarters location in Austin, Texas was  chosen, in part, because of its close proximity to science, technology, and  engineering talent and small business start-ups that can provide  innovative solutions.

Army Futures Command Is Taking Steps to Engage with Small Businesses, but Is Not Fully Leveraging Existing Relevant Army Expertise

Army Futures Command Stated It Is Continuing Small Business Engagement Efforts of Subordinate Commands and Taking Initial Steps to Enhance Engagement

Senior Army Futures Command officials told us they intend to continue  the small business engagement efforts undertaken by components being  integrated into the new command. Command officials stated that  organizations transitioning to Army Futures Command will continue  engaging with small businesses as they have in the past. For example,  organizations transitioning to Army Futures Command awarded about  $1.3 billion to hundreds of small businesses from fiscal years 2013  through 2017. In addition, prior to transitioning to the new command, the  Combat Capabilities Development Command Army Research Laboratory  and the Medical Research and Materiel Command participated in  outreach events, such as industry days and conferences focused on  small businesses, to network with and identify small businesses for  potential future awards. According to officials from these commands,  these efforts have historically led to business relationships using a variety  of arrangements, including contracts, agreements using other transaction  authority, grants, cooperative agreements, and cooperative research and  development agreements. Officials from Army Futures Command stated  that the past efforts of its components aimed at small business  engagement would continue. The command also plans to continue  utilizing the Small Business Innovation Research and Small Business  Technology Transfer programs to award contracts, grants, and  cooperative agreements to small businesses.

Army Futures Command also intends to use their cross-functional teams  to enhance small business engagement. These teams identify capability  needs and requirements derived from the Army’s six modernization  priorities. Officials told us that these cross-functional team efforts can  serve as a way to focus small business engagement. For example, the  cross-functional teams develop problem statements that describe the  capabilities currently needed by the warfighter for a specific activity, such  as a need for better communications and networking equipment. These  problem statements can then be shared with small businesses as part of  outreach efforts—such as challenge competitions or industry days—and  lead to discussions about potential solutions.

In addition, Army Futures Command officials told us the command  intends to enhance its small business engagement through several  initiatives—some of which are underway and some of which are in  development. Officials told us they were not certain how many of these  initiatives have led to specific contracts or awards, but noted that they had  in some cases. Command officials told us that they have undertaken four  initiatives to engage with small businesses for research and development:

Army Research Laboratory Open Campus 2.0 is based on an  existing Army Research Laboratory program to transition scientific  research from universities to Army technology concepts. It will work  with the research communities within universities to develop these  concepts and potentially commercialize them. This program is  currently directed by the office of the Deputy Commanding General,  which is located at the command’s headquarters in Austin, Texas.

Army Capability Accelerator is a new initiative that engages small  businesses in developing and maturing concepts into prototypes and  validating early-stage technologies. The accelerator is managed by  the Army Applications Laboratory, which is located with the  command’s headquarters in Austin, Texas. It also provides the  support and infrastructure needed to accelerate small businesses’  concepts into solutions for warfighter capability gaps. Army Capability  Accelerator has offices in Austin, Texas, and New York City, New  York, and Army Futures Command intends to establish additional  offices across the country. Army Capability Accelerator has hosted or  co-hosted events allowing small businesses to demonstrate their  capabilities and engage with the command. For example, the Austin  office hosted a challenge competition in September 2018 to develop a  solution for countering a drone threat. Similarly, according to officials,  the New York City office hosted a challenge competition in December  2018 where the command funded awards to small businesses for  positioning, navigation, and timing capabilities.

Army Strategic Capital is a proposed restructuring of a prior initiative  intended to leverage venture capital to offset Army development costs  through co-investment with existing Army Small Business Innovation  Research and Small Business Technology Transfer programs.  According to Army Futures Command officials, this initiative will be  managed by the office of the Deputy Commanding General in Austin,  Texas, but is in the planning stages and could involve legislative or  policy changes to clarify or augment the authorities of the command.

Halo is a new initiative intended to accelerate the adaptation and  transition of commercial and startup-derived products to Army  applications and programs. This initiative involves more mature  technologies and focuses on the acceleration and integration of  prototypes. Army officials stated that Army Applications Laboratory  will manage this initiative and that it is under development.

These four initiatives are described further in Figure 3 below:  Army officials noted that many of their new initiatives address concerns  raised by small businesses in working with the government, including the  Army, on research and development activities. According to a  representative involved with the capability accelerator office in Austin— which involves a private company that works with small businesses to  facilitate opportunities both across the private sector and, now, with the  Army—small businesses have expressed concerns about working with  the government. Specifically, these representatives identified concerns  related to barriers to entry, length of time to reach an award, and the  complexity of the government contracting process, among others.  Similarly, representatives from the capability accelerator office in New  York City stated that the Army needs a way to increase its visibility to  small businesses in order to attract the interest of these companies. Army  Futures Command officials acknowledged these concerns and said that  they are developing efforts to alleviate or overcome them. For example,  as part of its Halo initiative, the Army created a program intended to guide  small businesses through the government contracting processes. In  addition, Halo also plans to use business arrangements designed to  decrease the time between initial contact with small businesses and the  award of contracts or other agreements.

Army Futures Command Has Not Fully Leveraged Army’s Small Business Expertise but Is Working to Improve Coordination

In its initial efforts to enhance engagement with small businesses, Army  Futures Command did not fully leverage the expertise of other Army  organizations that previously facilitated small business engagement.  Various Army officials have identified several early instances in which the  command took steps to engage with small businesses without consulting  other Army offices with relevant expertise. For example:

Army Office of Small Business Programs—According to Army  Office of Small Business Programs officials, the command did not  consult with them (1) before engaging with small businesses in Texas  for research and development efforts; (2) when establishing its small  business office, which is still ongoing; and (3) before announcing  hiring positions for that office. Army Office of Small Business  Programs is positioned to provide direct support to various commands  on small business activities. In particular, we previously reported that  small business offices are responsible for assisting agencies in  increasing small business participation and provide advice on  acquisition strategies and market research.

Subordinate Commands—According to Army officials, Army Futures  Command has not fully engaged the organizations that transitioned,  or are transitioning to, the command in terms of small business  research and development efforts. Combat Capabilities Development  Command and its subordinate command Army Research Laboratory,  these organizations have years of experience working with small  businesses on research and development efforts. Army Research  Laboratory is the Army lead for the Small Business Technology  Transfer program, and participates in the Small Business Innovation  Research program along with other Combat Capabilities Development  Command organizations; both of which are designed to stimulate  technological innovation. Combat Capabilities Development  Command officials stated they have had limited involvement with  Army Futures Command headquarters on small business research  and development issues. In addition, Medical Research and  Development Command officials stated that Army Futures Command  headquarters has not interacted with them on small business  engagement beyond planning for the organization’s transfer to Army  Futures Command. Historically, Medical Research and Materiel  Command participated in the Small Business Technology Transfer  and the Small Business Innovation Research programs and  conducted outreach to small businesses through various events, such  as industry days and conferences focused on small businesses.

Office of the Assistant Secretary of the Army for Acquisition,  Logistics, and Technology—We reported in January 2019 that it  was not yet clear how Army Futures Command will coordinate its  responsibilities with the Office of the Assistant Secretary of the Army  for Acquisition, Logistics, and Technology. The office conducts  outreach to small businesses, sponsors challenge competitions, and  promotes small business participation in Army acquisitions.

More recently, according to Army officials, the command is seeking to  improve and formalize coordination roles and responsibilities related to  research and development within and outside the command. For  example,

Although a formalized agreement between the command and Army  Office of Small Business Programs does not yet exist, the command  is now actively consulting with this office. According to Army small  business officials, the command has been familiarizing small business  staff with their office and its small business research and development  efforts. The command has also been establishing its small business  office with support from Army Office of Small Business Programs. In  addition, Army small business officials stated that the office is  assessing the command’s small business needs to determine how to  allocate workforce resources. However, the effort has not been  finalized.

The command is also working to formalize small business  relationships within and among its components. As part of this, the  command established a Directorate of Operations at headquarters to  facilitate integration of command activities across components, which  would include those related to small business research and  development. However, the command has not yet assigned a  permanent director for the new directorate.

According to Army Futures Command officials, as well as Army  documents, the command will continue to develop coordination  procedures related to research and development with the Assistant  Secretary of the Army for Acquisition, Logistics, and Technology. The  command is also working with the Assistant Secretary’s office on a  challenge competition that aims to facilitate small business  engagement with the Army and spur innovative technology.

Army Futures Command does not have its own procurement authority, so  the Army Contracting Command will provide it with contracting support.  This support includes making awards to small businesses on behalf of  Army Futures Command. Army Contracting Command officials told us  they are also supporting the establishment of an Army Futures Command  contracting office that would advise on contracting needs. For example,  they sent temporary support staff to the headquarters of the new  command and are helping with recruitment efforts for permanent  personnel.

Army Futures Command officials told us they had not prioritized  coordinating with other Army organizations that have small business  expertise because the command and its officials had other, more pressing  priorities, such as establishing the command and engaging directly with  small businesses as quickly as possible. Federal internal control  standards state that during the establishment of an organizational  structure management should consider how organizations across and  outside of it interact in order to fulfill their overall responsibilities. This  includes establishing reporting lines and roles and responsibilities within  and outside the organization as they relate to small business  engagement. With those coordination roles and responsibilities  established, organizations are better able to communicate the quality  information necessary to fulfill their overall small business engagement  responsibilities. By taking actions to formally coordinate with and  leverage other Army organizations’ expertise, such as coordinating  outreach events, Army Futures Command could improve its opportunities  to engage with small businesses and obtain access to the innovative  research and development they could provide. Further, if the command  does not formalize coordination roles and responsibilities, it risks  potentially duplicating small business-related work and creating overlap  and fragmentation.

Army Futures Command Has Not Yet Developed Tracking or Performance Measures for Small Business Engagement

Army Futures Command Does Not Fully Track Small Business Engagement

As previously noted, Army Futures Command stated it is continuing the  efforts of its subordinate commands to engage with small businesses and  is taking additional steps to enhance engagement. However, command  officials told us they do not systematically track the number and timing of  outreach events, the number of participants at these events, and the  extent to which these outreach efforts result in business arrangements  such as contracts. As a result, Army Futures Command officials were  uncertain of how often the command—across all of its components—was  engaging with small businesses for research and development efforts.  For example, Army Applications Laboratory officials were not able to  identify the number and timing of challenge competitions the command  has hosted or is planning to host in the future. Some organizations that  have transitioned to Army Futures Command, such as Combat  Capabilities Development Command, continue to track small business  engagement activities for their component. However, Combat Capabilities  Development Command officials told us that they were unsure if this data  will be tracked at Army Futures Command headquarters.

According to Army Futures Command officials, the command has not  prioritized tracking small business activities because it focused instead on  establishing the command and engaging with small businesses as quickly  as possible to identify innovative solutions. Officials did not provide a  specific plan for tracking such engagement. According to Federal Internal  Control Standards, management should establish monitoring activities for  its internal control system and evaluate the results to remediate any  identified challenge on a timely basis. Further, management should use  quality information from reliable sources in a timely manner to achieve the  objectives of the command.

By tracking its small business engagement activities, Army Futures  Command would have a more comprehensive understanding of the  various efforts underway across the command. This would provide  opportunities to examine its overall small business engagement efforts.  Tracking such information would also allow the command to make  adjustments to those efforts to ensure it obtains the innovative input from  small businesses the command has stated it needs to achieve its  modernization goals. Tracking small business engagement across the  command components could also help reduce inefficiencies including  overlap, fragmentation, and duplication of its small business engagement  efforts.

Army Futures Command Has Not Yet Established Performance Measures to Assess Small Business Engagement

While Army Futures Command officials told us they consider small  businesses to be critical to their success and they have taken steps to  engage with small businesses, the command has not yet established  measures for evaluating the effectiveness of that engagement across the  command nor has it developed a plan to systematically assess these  efforts. Command officials told us that they are in the process of  considering various measures to do so, but they have not yet determined  which specific measures, if any, they will use. There is also no time frame  to establish these measures. According to Army Futures Command  officials, they would consider small business engagement successful if,  for example, a Small Business Innovation Research award resulted in an  innovation or a technology that was later transitioned to a weapon  systems program or a product that would further support an Army weapon  systems program. Command officials told us they have not formalized  and implemented these measures because the command and its officials  have prioritized focusing on establishing the new command.

Components subsumed by Army Futures Command have historically  used performance measures to assess their small business engagement.  For example, officials from Combat Capabilities Development Command  told us that they previously used several outcome-based measures,  including the number of Small Business Innovation Research products  incorporated into fielded Army acquisition programs, contracts awarded to  small businesses, and total dollars obligated to small businesses for  research and development. This previously collected information was  then provided to management in various small business offices in  semiannual reports. Officials told us they have continued to monitor this  information since the transition to Army Futures Command. Officials from  Medical Research and Development Command also reported that they  have performance measures and that they use these measures to assess  the success of their small business engagement. For example, they said  that they develop summary reports after outreach events with small  businesses. These reports describe the event, outcomes, and how  participation at the event enhanced utilization of small businesses for  research and development efforts. The reports are also used internally as  market research for future opportunities.

Internal control standards call for management to use quality information  to make informed decisions and to define objectives in specific and  measurable terms so that performance toward achieving those objectives  can be assessed. Management should also determine whether  performance measures for the objectives are appropriate for evaluating  performance. Once performance measures are defined, management  should then establish and operate monitoring activities that allow them to  evaluate the effectiveness of the internal control system. Establishing  performance measures and developing a plan to capture and monitor  information on its small business engagement would help ensure Army  Futures Command is not missing opportunities to make informed  management and investment decisions for its research and development  efforts. Establishing these measures and a plan to monitor how the  command assesses small business engagement would also help it to  evaluate the overall effectiveness of its small business engagement in  providing support to the warfighter and identifying which small business  efforts have been most effective.

The establishment of Army Futures Command represents a considerable  change to how the Army develops new weapon systems and prepares for  the future. While Army Futures Command is still finalizing how it will  operate, it is already engaging with small businesses in various ways.  However, the command could better manage these efforts. In particular,  formalizing coordination roles and responsibilities with Army organizations  that already have small business experience, such as the Army Office of  Small Business Programs, would allow the command to leverage  additional expertise as it pertains to small business engagement for  research and development.

In addition, Army Futures Command does not systematically track  engagement across the command. By tracking this activity, the command  could more effectively oversee and manage overall small business  engagement.

Finally, while Army Futures Command officials consider engaging with  small businesses critical to the success of modernization, it has not yet  developed performance measures to assess the effectiveness of its small  business engagement nor has it developed a plan for systematically  assessing its efforts. Establishing performance measures, and using them  to assess small business engagement, would provide the command with  information to evaluate, and potentially enhance, its engagement with  small businesses to help accomplish its research and development  efforts.

We are making three recommendations to the Secretary of the Army.

The Secretary of the Army should direct the Commanding General of  Army Futures Command to formalize coordination roles and  responsibilities for small business engagement in support of research and  development with relevant Army entities. (Recommendation 1)

The Secretary of the Army should direct the Commanding General of  Army Futures Command to systematically track its small business  engagement in support of research and development across its  subordinate organizations. (Recommendation 2)

The Secretary of the Army should direct the Commanding General of  Army Futures Command, in coordination with relevant Army entities, to  establish command-wide performance measures and develop a plan to  use these measures to systematically assess the effectiveness of small  business engagement in support of research and development.  (Recommendation 3)

We provided a draft of this report to the Army for review and comment. In  its written comments, reproduced in appendix II, the Army concurred with  all three of our recommendations. The Army also provided technical  comments which we incorporated as appropriate.

We are sending copies of this report to the appropriate congressional  committees; the Acting Secretary of Defense; and the Acting Secretary of  the Army. In addition, the report is available at no charge on the GAO  Website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-4841 or LudwigsonJ@gao.gov. Contact points for our  offices of Congressional Relations and Public Affairs may be found on the  last page of this report. GAO staff who made key contributions to this  report are listed in appendix III.

Appendix I: Objectives, Scope, and Methodology

You asked us to examine how small businesses that support research  and development efforts could be affected by the establishment of Army  Futures Command. This report (1) describes what analyses, if any, the  Army conducted to determine the effect of its modernization initiatives on  small businesses; (2) describes how Army Futures Command is engaging  with small businesses to support research and development efforts and  assesses how it is coordinating with other relevant Army organizations;  and (3) assesses how Army Futures Command plans to track and  measure the performance of its engagement with small businesses to  support research and development efforts.

We analyzed research and development contract awards and obligations  made during fiscal years 2013 through 2017 for the Army. The data are  presented in the background as it is prior to the establishment of Army  Futures Command in 2018. For the number of contracts, we used the  number of new base contract awards for research and development. For  the obligations, we analyzed both newly awarded base contracts and  associated orders under indefinite-delivery contracts since funds would  be obligated at the order level. The obligations in this analysis include  only those made during the fiscal year the contract was awarded. To  identify and analyze contracts awarded during that time period, we  requested data in the Federal Procurement Data System-Next Generation  database from the Army. The Army used the product and service codes  for research and development to extract the relevant data for fiscal years  2013 through 2017. The data also included contracts awarded through  the Small Business Innovation Research and Small Business Technology  Transfer programs for that time period and business size and registered  location. We excluded foreign military sales obligations. We did not  include subcontractor data. We obtained the funding codes for  organizations that are transitioning to Army Futures Command, which  includes the former Army Research, Development, and Engineering  Command and the Army Medical Research and Materiel Command,  portions of which are transitioning to the new command. To determine the  proportion of contracts and associated obligations that supported these  organizations, we used their funding codes to identify the number of  contracts and associated obligations during our selected time period. To  assess the reliability of the Federal Procurement Data System-Next  Generation data, we electronically tested for missing data, outliers, and  inconsistent coding. Based on these steps, we determined the data were  sufficiently reliable for identifying and analyzing Army contracts awarded  from fiscal years 2013 through 2017 for research and development efforts  and their obligations. We obtained data on grants, cooperative  agreements, and other types of agreements using the Defense  Assistance Awards Data System. We conducted initial analysis on the  data and discussed reliability and validity of the data with agency officials.  As a result, we determined that the data were not sufficiently reliable for  the purpose of this engagement and we excluded them from our review.

To describe analyses the Army conducted on the potential effect  modernization efforts could have on small businesses, we collected and  reviewed available studies and analyses the Army conducted. We  reviewed the Army’s science and technology portfolio analysis, studies  related to the establishment and future organizational structure of Army  Futures Command, and the Army’s modernization strategy to determine if  the Army analyzed how small businesses could be affected.

To describe how Army Futures Command is engaging with small  businesses to support research and development efforts, we reviewed  policies, procedures, and guidance from the Department of Defense,  Department of the Army, Army Futures Command, and other relevant  Army organizations on small business engagement. We also reviewed  relevant sections of the Federal Acquisition Regulation, as well as  Defense and Army supplements to the Federal Acquisition Regulation, to  understand the framework for small business participation in support of  research and development efforts. We also reviewed relevant statutes,  regulations, and policies regarding research and development and small  business programs. We collected and analyzed documentation on how  Army Futures Command engages with small businesses, including its  roles and responsibilities, outreach efforts, and award documentation as  well as those of its subordinate components. To assess how Army  Futures Command coordinates with other Army organizations, we  reviewed policy documentation, such as a memorandum of understanding  on coordinating contract support and for small business engagement, in  addition to operational orders outlining roles and responsibilities. We  assessed the information we collected against Federal Standards for  Internal Control related to organizational structure, reporting lines, roles  and responsibilities, and using quality information.

To assess how Army Futures Command plans to track and measure its  engagement with small businesses, we reviewed policies from the  Department of Defense and Army on engagement with small businesses.

To understand how Army Futures Command plans to track its small  business engagement, we reviewed policy documentation from the  command, operational orders, briefs and memoranda. We also reviewed  documentation on how organizations tracked this data prior to  transitioning to Army Futures Command. In order to assess any  performance measures Army Futures Command plans to use to evaluate  its small business engagement, we reviewed available documentation on  the establishment of the command. We also reviewed documentation  from organizations transitioning to Army Futures Command to determine  how these organizations previously monitored and evaluated their small  business engagement. In addition, we assessed the information we  collected against Federal Standards for Internal Control related to  establishing monitoring activities, using quality information, defining  objectives, and evaluating results.

To more completely understand the small business engagement efforts of  the new command, we interviewed officials from various Army offices,  including the Office of the Under Secretary of the Army, Army Futures  Command, organizations transitioning to the new command, Army Office  of Small Business Programs, members of the Office of the Assistant  Secretary of the Army for Acquisition, Logistics, and Technology, and  Army Contracting Command. We also met with two private sector entities  the Army has coordinated with for outreach to small businesses. These  entities have experience in engaging small businesses both in the private  sector and for government programs and discussed with us the concerns  and challenges small businesses have in working with the government.  These views are not generalizable but provide perspective on matters  relevant to the Army’s efforts to engage with small businesses.

Appendix II: Comments from the Department of Army

Jon Ludwigson at (202) 512-4841 or LudwigsonJ@gao.gov.

In addition to the contact named above, J. Kristopher Keener (Assistant  Director), Andrea C. Evans (Analyst-in-Charge), Hilary Benedict, Emily  Bond, Frederick K. Childers, Matthew T. Crosby, Lori A. Fields, Julia  Kennon, Jean McSween, Monique Nasrallah, Anh Nguyen, Kevin O’Neill,  William Shear, and Anne Stevens made contributions to this report.

The new Army Futures Command oversees Army modernization—upgrading its weapons and capabilities. The command considers working with small businesses to be critical to its success.

Command officials say they will continue prior Army efforts to reach out and award contracts to small businesses. They are also exploring innovative ways to help small businesses develop technologies that address Army needs. However, we found they were not fully leveraging Army’s expertise, including that of the Army’s Office of Small Business Programs.

We recommend that the new command coordinate with other Army organizations and track its small business engagement.