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At the Business School ten years ago, WARP studied how the government Could get its weapons more efficiently

NEARLY ten years ago, a group of Harvard Business School researchers decided to take a look at the economic efficiency of defense contracts.

They arrived at this decision in a round-about way. For some twenty years, a committee headed by George P. Baker '25, then a professor and now dean of the Business School, had been researching the problems caused by the tremendous growth of aviation. In 1957-58, some of the members of this committee met to discuss the basic economic problems of the aircraft industry.

After a few meetings, the committee decided these problems presented a typical case of the relations between government and the defense industry. They decided to expand their research into the wider field.

The prospectus of the project said that it would attempt to "determine the nature of the relationships between the government and weapons contractors in the acquisition of advanced weapons." The researchers hoped to find out how these relationships affected the cost and development time of weapons, and to recommend improvements in the system of awarding defense contracts.

To finance this research, the group sought a grant from a "neutral" source, to avoid charges that the study was "industry-oriented" or "government-oriented." Approaching the Ford Foundation for a grant, they were given $260,000. A name--The Weapons Acquisition Research Project--and a project head--Paul W. Cherington '40, James J. Hill Professor of Transportation, completed the preparations.

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From 1958 to 1961, the WARP studied 12 major defense contracts including the Atlas, Jupiter, and Polaris missiles, the F4H intercepter, and the Nike Zeus anti-missile. Their case studies covered more than 1200 draft pages.

Researchers for the group received access to classified materials of the Defense Department on a "need to know" basis. In return, they agreed to submit all publications by the WARP to the Security Office of the Secretary of Defense for clearance.

One basic feature of the defense industry struck the WARP researchers from the beginning. They found that defense business takes place in a "unique environment of uncertainty." A high proportion of the effort of defense industries involves unpredictable research and development activities.

One researcher had second thought about participating in the project: "I am not proud of what seem to be my principal motives-intellectual fascination with a complex and challenging problem...and the well known need in academic circles to publish or perish....

"Stimuli of this sort have long been a driving force in the advance of science, both physical and social. But now, unfortunately, scientific advance seems to contribute more to our capabilities for destroying civilization than to building a better world. The scientist, by tradition reserving judgment on the moral implications of his work, will continue to publish, and perhaps we shall all perish."

Technical difficulties in a defense project can create soaring costs, or add years to the anticipated development time. Furthermore, technical advances can make a weapons system obsolete before it is even in operation.

The domination of the market by one buyer--the government--adds to the uncertainty. Changes in national defense policy (such as the Eisenhower emphasis on nuclear, rather than conventional weapons) create havoc in the market.

Thus, the defense business takes on a non-market character. The WARP found that the government relieved defense firms of economic risk, and played a correspondingly larger role in the managerial decisions.

After analyzing the government's incentive policies, the WARP found that they gave defense contractors relatively little incentive to reduce costs. However, the existing system did provide maximum quality and a minimum development time for weapons.

To strengthen cost incentives, the group recommended that incentives be determined by an objective board after a given weapons contract had been completed. The more efficient the performance the higher would be the profit. Furthermore, they advised that past performance be taken into account when awarding new contracts. High-performance contractors would be rewarded by a rapid rise in their share of the defense awards.

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