A History of Defense Contract Administration

Editor’s note: The following is a history of defense contract administration written in 1999, shortly before establishment of the Defense Contract Management Agency. The author, Janet A. McDonnell, was the Defense Logistics Agency historian at the time. 

From the earliest years of our nation’s history, the military has relied on contracting to support its missions. Effective administration of these contracts has been vitally important to the wellbeing and success of our warfighters. It has helped ensure that contractors met their contractual requirements for cost, schedule, and technical performance. To a large extent, the success of any procurement action has and continues to hinge on how well it is administered during its performance.

Revolutionary War

In June 16, 1775, the Second Continental Congress passed a resolution providing for a quartermaster general. Washington appointed the first Quartermaster General on August 14, 1775. The same day it also provided for a Commissary General to acquire supplies for the troops – but there was little supervisory control. Under this system the Quartermaster General and Commissary General would buy, store, transport, and distribute needed goods. The Army depended upon commissaries, attached to the Army, to purchase and issue the needed rations. The commissariat system continued until 1781.

By the end of 1781, the new Superintendent of Finance has assumed complete direction of the subsistence procurement. He entered into contracts to supply the Army with rations and later clothing and wood. The first clothing contract, awarded for 1785 to the firm Thomas Lawrence and Jacob Morris of New York, included a provision for inspecting the clothing.

The contract system drew heavy criticism as problems arose. Contractors often sold tainted provisions at inflated prices and failed to maintain adequate reserves. In June 1781 Congress appointed John Paul Jones to command the 74-gun ship America while the ship was under construction at Portsmouth, New Hampshire. Jones served as “SUPSHIP” until November 5, 1782, when Congress transferred ownership to France to compensate that government for a ship it has lost in support of the American Revolution. Jones later reported, “The most disagreeable service to which I was assigned during the whole course of the Revolution was to supervise the slow construction of this ship.”

Early Procurement Under the Constitution

The Constitution contained no specific provisions for contracting but the implied power of the executive to enter into contracts was inherent in the concept of sovereignty.

In 1789, Congress created the Department of War and the Treasury Department, and both departments contracted for troop food and clothing. In 1792, in the first law regulation federal procurement, Congress authorized the Treasury Department to make all purchases for the War Department. In 1795 Congress created within the Treasury Department the Office of Purveyor of Public Supplies with the authority to procure all articles of supply for the Army and Navy. Three years later, Congress reversed itself, authorizing the War and Navy department to procure their own supplies. The Purveyor of Public Supplies continued to execute all contracts except those for subsistence, which the Secretary of War handled directly. The practice of soliciting bids by public advertisement and awarding contracts to the lowest bidders had become routine.

War of 1812

In March 1812, Congress abolished the Office of Purveyor of Public Supplies and created the Office of the Commissary General of Purchases under the direction of the Secretary of War. The Quartermaster Department was established to aid the Secretary of War in buying, inspecting, and distributing military equipment. Neither the Quartermaster General nor the Commissary General were responsible for subsistence, which was still procured through contracts. Throughout the War of 1812, the contract system for subsistence failed miserably. There was almost a total lack of accountability.

In 1818, Congress abolished the contract system for subsistence that had been in place since 1781, and returned to the commissariat system. As a result, the delivery of rations improved and costs diminished.

From 1815 to 1860, the contracting process became more structured. The military departments imposed more formal contracting procedures to ensure accountability and reasonable prices, for both the Army and the Navy.

Civil War

The Civil War tested the contracting process, and it barely passed. The supply departments were called upon to provide for a force many times the size of the small prewar Army. The contracting process had been carefully structured from the 1820s to the 1850s to ensure accountability and competition. But the war overloaded the purchasing infrastructure, which lacked experienced officers to supervise the system. There were an unprecedented number of scandals in the midst of overwhelming demand for food, weapons, and other supplies.

Early in 1861, Congress had reiterated the basic policy that had long governed procurement. It had enacted legislation requiring that all contracts for supplies and services in any governmental department were to be made by advertising for proposals, allowing a sufficient time for submission of bids, and making the award to the lowest bidder. For the first three years of the war, depot quartermasters or quartermasters in the field procured supplies either under contract or, in and emergency, by open-market purchase.

Well aware that the war provided opportunities for swindling the government, on June 2, 1862, Congress enacted legislation to discourage fraud by the supply officers entrusted with the making of contracts. By end of the war, all who might be considered influential in connection with contracts, contractors, inspectors, and quartermasters had been brought under the restrictions and penalties set forth in the laws passed by Congress. Actual enforcement however appears to have been limited.

Under the legislation governing contractual procedures, the Quartermaster’s Department procured clothing, shoes, blankets, tents, knapsacks, camp kettles, and canteens. It obtained ambulances, wagons, horses, mules, harness, and forage; and it purchased stationary, straw, wood for fuel, as well as hundreds of items used in construction projects and repairs. It chartered and purchased steamboats, tugs, barges, ferryboats, and gunboats. It contracted for railroad transportation of troops and supplies during the Civil War and procured engines, cars, and items needed for repairing military railroads.

War had necessitated many open-market (negotiated) purchases, but after the war there was renewed emphasis on having supply depots procure items through formally advertised contracts awarded to the lowest bidder. Policymakers sought to put more controls in the contracting process.

Civil War to World War I

Postwar investigations revealed that fraudulent practices were even more prevalent than the War Department had suspected. The period between the Civil War and World War I was marked by reform in contracting. The military services would have a better procurement record in the Spanish-American War (1898) than in the Civil War.

After the Spanish-American War, Congress reemphasized the use of competitive bids and awarding contracts to the lowest bidder. The main story in government contracting continued to be the Navy buildup, specifically contracts with private shipyards for the construction of gunboats, torpedo boats, and battleships.

In 1893, the Dockery Commission, named after its chairman, Representative Dockery of Missouri, identified problems with procurement to include the lack of standard specifications, unstable prices, and duplication of functions. In 1894 Congress amended the 1861 statue to provide for the review of all agency purchase proposals by a newly created Board of Awards.

There followed several Executive Orders dealing with contracting. A General Supply Committee, created in 1909, promulgated standard forms, a standard contract, and a standard bond. This began the standardization of government-wide contract documents and restricted the discretion of individual contracting officers.

Meanwhile, technological advances opened up a new field for contracting and contract management. In February 1908, the Army’s Signal Corps awarded a contract to two obscure bicycle manufacturers from Dayton, Ohio, Orville and Wilbur Wright, to produce a flying machine that would carry two men a minimum of 40 miles per hour for at least 60 minutes. Management of the first U.S. military aircraft contract was simply a detailed final inspection of the final product. The U.S. military considered contract management to be limited to inspections.

In July 1909, the Wright brothers successfully completed a 10-mile flight at Fort Myer, Virginia, at over 41 miles per hour. Their aircraft become the first one to enter the U.S. military inventory.

World War I

World War I marked the greatest mobilization since the Civil War. The national abandoned the luxury of the competitive bid process. During World War I, the Army awarded contracts to clothe and equip troops. As the Army and the Navy awarded contracts for aircraft, the infant aircraft industry struggled to meet demand.

Meanwhile, it became increasingly clear that contract management had to be improved. Army aviators complained directly to General John J. Pershing that they were being neglected. Pilots complained that new pursuits and observation aircraft were held together with nails and screws. They believed bolts would be safer and more reliable.

These complaints prompted improvements in contract management procedures. In 1916, Congress authorized funds to pay the salaries of forty aircraft inspectors. The following year, an aircraft inspection department was formed within the Army Signal Corps to bolster production. It was the first organizational element solely concerned with managing military aircraft contracts.

Officials realized they needed a responsible inspection system to detect defects in vital areas and have them corrected during the manufacturing process. This paved the way for the first in-plant inspection office.

Within weeks of America entering the war, the Army and Navy bureaus had awarded thousands of contracts. The War Department alone entered into more than 30,000 contracts, worth more than $7.5 billion. Unfortunately, the supply bureaus competed with each other for scarce labor, plants, and materials, creating confusion. The War Industries Board, established in 1917, had control over war materials, finished products, priorities, labor, and prices, until it was dissolved at the war’s end.

Between the Wars

The end of World War I brought a return to formal advertising and standard peacetime procurement procedures. The War Department cancelled undelivered balances on contracts totaling about $4 billion. The complaints about contractor performance during the war created a strong anti-contract sentiment. In response, Congress layered the procurement process with numerous statutes.

The war had demonstrated the value of centralized control of procurement, a trend that continued during the 1920s and 1930s. The National Defense Act of 1920 authorized the President in wartime, or when a war was imminent, to contract without regard to the existing statutes and gave the military a large degree of centralized control. It gave the Quartermaster General responsibility for procuring for the Army all supplies of standard manufacture and all supplies common to two or more branches.

Between World War I and Word War II, the airplane dominated procurement, as the Army and the Navy sought to modernize their air fleets. In 1921 the Army awarded a contract to Boeing Aircraft Company to produce 200 MB-3A airplanes. The Army Air Service (the Army’s air arm) established its first peacetime in-plant inspection office in June 1921, at Boeing in Seattle, Washington. Instead of relying almost entirely on final inspections to determine whether the contractor had complied with the contract, quality checks of materials and workmanship were performed from design to final acceptance of the product. The while final inspection remained the basic requirement, a system of detailed inspections of the contractor’s product throughout the construction process began to emerge.

The concept employed at the Boeing plant was so effective and efficient that a second in-plant office was established at the Douglas Aircraft Company facility at Santa Monica, California, in 1923.

In 1926, the Navy Aviation Act and Army Air Corps Act (designating the Army’s air arm the Army Air Corps) was a major congressional attempt to stimulate the aviation industry, which had deteriorated badly after the war. Both mandated that aircraft be bought competitively. The Army Air Corps Act of 1926 became the cornerstone of a new procurement policy for aircraft design and construction and introduced more flexibility in the procurement process.

The law established a special branch within the Air Corps to supervise the inspection activities of three procurement district offices (New York City, Dayton, and Santa Monica).

Air Corps district managers who were attached to procurement district office performed technical supervision. In addition, Air Corps plant representative offices managed contracts at various manufacturing sites.

In June 1934, the first major program devoted to developing, testing, and purchasing quantities of combat aircraft began when the Army Air Corps contracted with Boeing Aircraft Company for the design of the B-17 bomber.

The same year, in response to complaints of excess profits by Navy contractors, Congress passed the Vinson-Trammell Act, which limited the profits on specified types of government contracts. The law also required Navy contractors and subcontractors for vessels and aircraft to agree to open their plants and books to inspection and audit.

World War II

As the world prepared for war, officials realized that peacetime practices would not suffice. Military contract management was a relatively simple operation applied through a small network of field organizations until May 1940 when President Franklin Roosevelt boldly called for the aircraft industry to increase production 50,000 airplanes a year.

On December 7, 1941, Japan attacked Pearl Harbor, and the U.S. entered World War II. The attack spawned what might well have been the first wartime contract. Immediately after the attack, LTJG Joseph M. Lyle, duty officer in the Supply Department at the Pearl Harbor Navy Yard, alerted the Honolulu purchasing office of an urgent need for blankets for men who had been burned while swimming from their battered ships through blazing oil. ENS John Burrill contacted the manager of Liberty House, a local department store, and arranged what was probably the first contract of the war – for needed blankets.

Congress passed the First War Powers Act on December 18, authorizing the President to award contracts “without regard to the provisions of law.” The President soon delegated these powers to the War and Navy department secretaries.

In January 1942, the newly created War Production Board assumed responsibility for directing war procurement and production and establishing priorities for military and civilian use of materials and supplies. The board quickly established policies for war procurement, including a requirement for negotiated contracts and prohibition against formal advertising for contracts.

World War II procurement was characterized by the use of negotiation, the broad use of cost and pricing analyses and various pricing devices, such as voluntary price reductions.

The expansion of the Army’s air arm brought organizational changes. In 1942 and 1943, the Army Air Force established procurement district offices in Wichita, Kansas (Midwestern); New York, New York (Eastern); Los Angeles, California (Western); Chicago, Illinois (Midcentral); and Atlanta, Georgia (Southestern). In addition, the Central District headquarters moved from Ohio to Detroit, Michigan. The number of personnel assigned to the Army Air Forces procurement districts soared from under 500 in 1939 to over 27,000 in 1944.

Organizationally, each district had numerous Army Air Forces plant representative offices (AAFPROs) and area offices assigned. AAFPROs were located at major defense plants, while area offices were situated in industrial centers to oversee contractors within the geographical area whose work volume did not warrant the assignment of a plant representative office. As the war in Europe scaled down, the number of procurement districts was reduced.

To replace the procurement districts, in 1946 air procurement field offices were established in various major cities. At the same time, the number of plant representative offices was reduced to seven. In the next few years, the Army further reduced the number of air procurement field offices and plant representative offices. The U.S. Air Force inherited this contract management organizational structure when it became a separate, autonomous military service in 1947.

In May 1948, Congress passed the Armed Services Procurement Act of 1947, which standardized purchasing methods for all the military departments and now required that contracts be formally advertised. To implement the act, the Services issued a new joint regulation, the Armed Services Procurement Regulation (later named the Defense Acquisition Regulation), providing uniform procedures and policies. This became with periodic revisions, the backbone of defense contracting for the next 30 years But the regulation lacked adequate coverage and spawned a mass of individual service regulations.

Procurement in the 1950s and 1960s

Throughout the 1950s there was a trend towards increased use of negotiated and cost reimbursement contracts, particularly for work involving the acquisition of major weapons and aerospace systems. Pressure grew to increase competition through formal advertising, improved source selection procedures, and adoption of contractor performance-evaluation programs. The 1960s were marked by an effort to improve pricing and curb excessive profits.

Air Force Procurement Organization

Early in the 1950s, the Air Force sought to decentralize its procurement operations. It again established six intermediate headquarters called air procurement districts. Within two years the number of plant representative offices grew from 4 to 36. Air regional offices were created to assume the missions that the area offices performed during World War II. (These districts were disestablished two years later and their functions assumed by Air Materiel Areas.) Air Force plant representative offices (AFPROs) and procurement field offices (later named Air regional offices) reported to district headquarters.

In 1962, the Air procurement districts were redesignated Air Force contract management districts (AFCMD) and Air procurement offices became Air Force contract management offices.

A major realignment of procurement occurred in the Air Force in 1969 when several Air Force commands were designated procuring activities and all Air Force commands and separate agencies received unlimited procurement authority.

Army Procurement Organization

During World War II, Army procurement was managed by its technical services such as the Quartermaster Corps. Between the war and 1962, the trend was toward regionally dispersed centralized procurement and procurement management. In 1962 the newly established Army Materiel Command assumed responsibility for the procurement functions of the Army’s technical services, except for construction (U.S. Army Corps of Engineers) and common use, commercial items (the newly created Defense Supply Agency).

Navy Procurement Organization

At the end of World War II, the Navy’s technical bureaus in Washington were spending most of its procurement dollars. This centralized purchasing continued after the war. In 1966, Navy Systems Commands were formed, replacing the technical bureaus. The Office of Naval Material, formerly a staff organization, became the Naval Material Command, charged with setting procurement policy for the Navy.

Defense Contract Administration Services

The reorganization of the procurement structure occurred in an era of increased defense spending and the emergence of a defense industry. The development of missile industry and a space program also helped define the era. Regulations governing contracting proliferated. The 1960 Armed Services Procurement Regulation was triple the size of the original one. Contracts were becoming much more complex.

In February 1962, more than 200 top defense procurement officials from both government and industry met in Williamsburg, Virginia, to discuss the need for establishing uniform field contract management.

In May, Secretary of Defense Robert McNamara established Project 60 to develop a plan for establishing uniform field contract management functions such as quality control, review of subcontracting practices, property administration, industrial security review, and price proposal review.

In October, McNamara approved the Project 60 recommendations, which established a Directorate for Contract Administration Services and set up a pilot test region in Philadelphia, Pennsylvania, under BG Allen T. Stanwix-Hay, USA. This test region would be transferred to DSA a year later.

In June 1964, NcNamara consolidated the contract management offices of the military departments and DSA under DSA. Major General William W. Veal, USAF, was named to head the new Defense Contract Administration Services (DCAS) organization.

Policymakers anticipated that the consolidation would significantly reduce manpower requirements and overhead costs, simplify procedures, and reduce the number of DoD activities dealing with contractors. DCAS would provide a common support services to all Defense Department and National Aeronautical and Space Administration procurement offices.

The new organization provided the following services: contract administration, contractor performance surveillance, inspection and acceptance of materiel, accounting for government property, security clearance of contractor facilities and personnel to handle classified information, and payment of contractors. 

Certain plant representatives of the Army, Navy, and Air Force, situated at key plants producing major weapons systems were not consolidated. Nor were the military and civilian construction contracts of the Army Corps of Engineers, Navy Bureau of Yards and Docks and Navy Supervisors of Shipbuilding.

During 1965, DoD activated eleven Defense Contract Administration Services Regions: DCASR, Philadelphia; DCASR, Detroit; DCASRs, Boston & Dallas; DCASR, Cleveland; DCASRs, Atlanta, Chicago, St. Louis; DCASR, New York; and DCSACRs, Los Angeles, San Francisco. These regions were sub-divided into DCAS Management Areas and DCAS Plant Representative Offices (which administered contracts at a specific contractor plant). Over the next twenty years, a number of AFPROs (e.g. General Electric Company, Martin Marietta Corporation) would gradually transfer to DCAS.

In January 1966, with the reorganization complete, the new DCAS organization begins its first full year of operation. Just as the new organization got on its feet, growing military involvement in Southeast Asia prompted an increase in contracts. Meanwhile, DCAS’s role in support of the nation’s young space program grew. NASA became the largest non-DoD user o DCAS services.

In 1975 the Assistant Secretary of Defense for Installations and Logistics launched a major review of defense contract administration. The resulting lengthy report contained recommendations about the processes and organization of field elements within DCAS and military services and led to further streamlining. N 1976, officials reorganized the DCAS field structure to eliminate the intermediate command level – DCAS districts.

In November 1977, an initial Defense Logistics Agency (formerly the Defense Supply Agency) study of the contract administration field structure was completed in response to an Office of the Secretary of Defense directive to review activities for base realignment. The study revealed that certain reductions and consolidations were feasible.

The Office of the Secretary of Defense supported DLA’s request to complete a detailed study concerning the consolidation of DCASRs and realignment of the subordinate Defense Contract Administration Services Management Areas (DCASMAs) as a basis for final action. Beginning in March 1979, DCAS consolidated what was at the time 9 DCASRs into 5 and 47 DCASMAs to 37. In FY 1986, DCAS worked with more than 28,000 contractors in the U.S., administering more than 407,000 prime contracts worth $262 billion. Despite the efforts at consolidation, 43 plant representative offices remained under the cognizance (assignment) of the military services: 25 Air Force (AFPROs), 15 Navy (NAVPROs), and 3 Army (ARPROs).

As defense spending increased in the 1980s, new regulations governed contracting. For example, in 1984, the Office of Federal Procurement Policy issued the Federal Acquisition Regulation, a single regulation to govern the procurement practices of all federal agencies.

Defense Contract Management Command

In July 1989, Secretary of Defense Richard Cheney released a Defense Management Report that outlined a plan to consolidate all defense contract administration, except for Navy Shipyards and Army Ammunition Plants, under a new Defense Contract Management Agency (DCMA) that would report to the Under Secretary of Defense for Acquisition. The report predicted that the consolidation would have substantial benefits. A DCMA Task Force was formed headed by the Director of the Defense Logistics Agency with representatives from the military services and DLA. In September, the Task Force submitted its implementation plan to the Secretary of Defense for review.

In November, Defense Management Review Decision 916 “Streamlining Contract Management” concluded that while Project 60 consolidated contract administration of all the military services, many major programs stayed with the military services. It directed the consolidation of almost all contract administration services.

On February 6, 1990, Deputy Secretary of Defense Donald J. Atwood directed that the military services and DLA consolidate their contract administration services functions within the existing DLA framework, a move that presumably would be less expensive and more efficient than creating another agency. The transfer of contract administration functions from the military services to DLA was completed on June 30, 1990. The first Defense Management Review-mandated structural realignment occurred when nine DLA contract administration services regions, along with the Air Force’s Contract Management Divisions, were consolidated into five districts with cognizance in the continental United States and one district to manage overseas contracts. This resulted from combining the military services’ plant representative offices and related contract administration services, including contract management, program and technical support, and quality assurance. The consolidation was completed on September 30, 1991.

The Defense Contract Management command (DCMC), a subordinate DLA command, was established on February 26, 1990, under Major General Charles R. Henry and charged with overseeing the newly consolidated contract management functions. The military services retained responsibility for contracts covering shipbuilding and ammunition plants.

As a result of the change, the DCASRs were renamed defense contract management regions (DCMRs) The DCASMAs became defense contract management area operations (DCMAOs), and the DCASPROs were renamed defense plant representative offices (DPROs).

In June 1990, the military services transferred 44 plant representative offices; 5,400 personnel; 100,000 contracts; and $400 billion in contract value to DCMC. Also transferred were 27 Air Force offices, 13 Navy offices, and 4 Army offices.

In August, DCMC redesignated Defense Contract Management Regions Atlanta, Boston, Chicago, Los Angeles and Philadelphia as Defense Contract Management Districts South, Northeast, North Central, West, and Mid Atlantic, respectively. They also disestablished DCMRs Cleveland, Dallas, New York, and St. Louis. In October 1990, the Defense Contract Management Command International was established at Wright Patterson Air Force Base, Dayton, Ohio (transferred from Air Force Materiel Command).

During its first year, DCMC completed most of the Defense Management Report recommendations and implemented many of the improvements identified in the DCMA Implementation Plan.

DCMC introduced the defense contract management office (DCMO) concept in March 1991. These would be smaller offices below the defense plant representative office level. By 1991, DCMC’s 20,250 personnel, including those assigned to the eight international offices, were administering over 500,000 contracts, totaling over $750 billion.

In June 1992, DCMC introduced Process Oriented Contract Administration Services (PROCAS), working with contractors to improved processes. Two years later, DCMC joined the Air Force’s C-17 Systems Program Office and contractor in a PROCAS arrangement that saved the C-17 from cancellation.

The 1990s brought relocation and new missions. In 1992, DCMCI moved from Dayton to Gentile Air Station, Ohio. The Mid Atlantic and North Central districts were disestablished in 1994 under the Base Realignment and Closure (BRAC) process. In September 1995, Defense Contract Management Command moved from Cameron Station to Fort Belvoir, Virginia. DCMCI followed in October.

Throughout the 1990s, DCMC played a key role in supporting military contingencies and humanitarian assistance operations around the world. During Operation DESERT SHIELD/DESERT STORM, which began after Iraq invaded Kuwait in August 1990, DCMC handled over 25,000 contracting actions for supplies in support of the operation, to include protective equipment, clothing, aircraft engines, and missiles.

In December 1992, DCMC managed contracts for the construction and maintenance of base camps, operations of food services, the production and distribution of water supply, and language services in support of the UN mission in Somalia. In 1994, DCMC supported the humanitarian mission in Rwanda, managing a contract for the delivery of 500,000 gallons of water each day. Also during 1994, DCMC managed the $150 million contract that provided base camp support in Haiti during Operation UPHOLD/MAINTAIN DEMOCRACY. During Operation JOINT ENDEAVOR in Bosnia, which began in December 1995, DCMC administered contracts covering a wide range of products and services to include preparing 26,500 meals a day, purifying 139,000 gallons of potable water a day, and delivering 20,000 gallons of fuel. After Hurricane Mitch in 1998, DCMC provided quality assurance for fuels n the disaster relief efforts in Central America. In May 1999, DCMC began providing contract management support to NATO troops in Kosovo.

While providing support to contingency operations around the world, the command further enhanced its reputation as a leader in DoD acquisition initiatives. In 1995, DCMC became the lead agent for DoD Single Process Initiative, a program that created over $450 million in cost savings and avoidances in just over two years.

DCMCI was renamed DCMDI and DCMDN (North) was renamed DCMDE (East) in January 1996. In June, DCMCS (South) was disestablished under BRAC. In April 1998, the Deputy Secretary of Defense directed DCMC to lead two Defense-wide Working Integrated Process Teams to re-engineer DD Form 250 (Material Inspection and Receiving Report) and the contract closeout process. In 1998 and 1999, several DCMC organizations received the prestigious Presidential Quality Awards.

DCMC contract management has come to encompass such diverse items as aircraft, space launch vehicles and spacecraft, medical and subsistence items, electrical and electronic commodities, military vehicles, munitions, petroleum, chemicals, and lumber. In addition, the command’s contract management now includes services that span the entire acquisition life cycle – from acquisition planning and strategy support to quality assurance and software surveillance through contract closeout. DCMC today manages more than 352,000 prime contracts worth more than $855 billion. It covers more than 23,000 contractors around the world. The command’s accomplishments have been recognized with numerous awards, to include several Hammer awards and scissors awards.