Public Procurement Corruption in Hungary – Identifying and Solving the

Problem for the Hungarian Ministry of Defense

Introduction

In early May 2010, Hungarian Defense Minister Csaba Hende told news agency MTI that Hungary‟s
defense system will be completely revamped, stating that he would fight corruption within the ministry and
the armed forces.

"I am determined to restore discipline and order," he said. (Politics.hu)

Since winning the April national elections, the Fidesz party has made headlines across Hungary, and even
Europe, rounding-up individuals within government and industry that have ties to corrupt practices. There
has been a political witch hunt, which many observers call hypocrisy. Countless headlines have been seen
on the news and on the internet of police carrying away former officials in handcuffs.

In June, the new Hungarian government appointed its first “accountability commissioner,” Ferenc Papcsák,
to "make sure that public money is spent properly, efficiently and to ensure transactions are above-board."
However, according to news agency MTI, “One of the commissioner's roles will be to name former
government officials who participated in economic decision-making which clearly damaged the country and
taxpayers, and to take legal steps to hold those former officials accountable.” This has caused even further
uproar as opposition party officials feel the new commissioner on accountability will be going on a “political
crusade.” (Politics.hu)

In June 2010, Hungary‟s deputy prime minister Tibor Navracsics said the new cabinet has committed itself
to reducing corruption, adding that "we share a historic responsibility in everything that affects the
Hungarian nation, including corruption." President László Sólyom proposed a "frontal attack" on corruption,
which he said is deeply rooted in society.

Transparency International (TI) has indicated that corruption is institutionalized in Hungary.

The situation is critical as regards public procurements and kickbacks; "behind the scenes" deals make the
whole system 25% more expensive. Some 65-70% of tenders are not clean and damage caused by
corruption is estimated at nearly Ft 400 billion, 1.5% of the annual GDP, according to TI. How much does
1.5% of GDP affect a nation like Hungary?

TI has put forward proposals to the new government that aims to transform party and campaign funding as
well as the public procurement system. The anti-corruption body also favors strengthening the crime
fighting bodies, making jurisdiction transparent and increasing the role of media campaigns. (Politics.hu)

It is clear, that while the new Fidesz government is trying to publicly remove corruption, the former MSZP
government is denying it ever happened, and the public thinks both are equally corrupt.

Dr Eva S. Balogh stated that,

According to estimates the size of the Hungarian untaxed economy (unreported profits from black
market businesses as well as from "questionable activities") is staggering--about 3,700 billion forints
a year. Of the 3,700 billion forints, about 1,000 billion forints disappear into people's pockets as the
result of outright corruption. Hungary, it should be noted, is not among the most corrupt countries in
the world. It is only middlingly corrupt. Transparency International studied 180 countries in 2006
and Hungary ranked 39th. Gallup, on the other hand, studied 101 countries and Hungary tied with
Kyrgizia (Kyrgyzstan) in 78th place.

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 If you ask Hungarians (Gallup, 2007) which segment of society is the most corrupt, they will first cite
the medical profession, followed by politicians. Two-thirds of those asked believe that "something
must be given" to people working in health care. Forty percent of the population thinks that a little
money under the table will help in dealing with parliamentary members, local council members, or
officials of ministries. One-third of Hungarians think that they can pay off police officers or auditors
coming from the Hungarian equivalent of the Internal Revenue Service. Twenty-five percent think
that even teachers can be bribed. Judges are lucky: only twenty percent believe that they are
corrupt enough to accept money for the "right" judgment. (Balogh)

Hungary‟s corruption problem is systemic and involves every facet of life. It is a known fact that individuals
holding positions of authority can be bought off. In 2009, our organization was told by an anonymous
source within Hungarian parliament that if we wanted to meet with the prime minister, the cost was 100.000
Euros. While the prime minister himself may have known nothing about this, the fact that other ministers of
parliament (MPs) or lobbyists had the ability to charge exorbitant fees for meetings is not only a violation of
law, but shows the system is corrupt at its core.

Specifically, the Hungarian military is one of the most overt sources of corruption. During mid-to-late 2009,
our firm met with many business in Hungary that spoke of near-unbelievable corruption, which permeates
defense and law enforcement industry in Hungary. In meetings with Hungarian military and law
enforcement officials, we were told in graphic detail that payoffs were expected; that nothing would happen
unless we paid officials. Looking into this further, we discovered over 50 tenders, including soldier
equipment, information technology, communications, armored vehicles, and aerial platforms that were all
subjected to overt corruption. In fact, one procurement was discovered where the Hungarian MOD issued
a contract for desperately needed military equipment at three-hundred percent of its actual value.

A History of Corruption

It is clear that a reliable defense acquisitions process is the single largest hurdle facing Hungarian national
security. In past years, military procurement has been rife with politics, personal agenda, and outright
fraud. During our research, we learned that contracts have been awarded to firms at premium prices, only
to be provided mediocre products and services. Contracts have been awarded to firms offering poor overall
value. Contracts have been awarded for respectable equipment, but at costs far beyond their true value,
therefore wasting funds that should have been used for other programs. Commanders have created their
own private businesses where they award themselves contracts at premium prices. All of this indicates that
the acquisitions process is sick at a core level and must be corrected

In 2007, Hungary‟s acquisition of Swedish-built Gripen fighter jets came under scrutiny after a Swedish
television channel said that an Austrian businessman had received an 8 million dollar kick-back for
mediation in the transaction. Nearly a year after the procurement, the Swedish government said the
“Gripen investigation has not come to an end…” In 2009, Britain's Serious Fraud Office (SFO) uncovered
evidence that Alfons Mensdorff-Pouilly corrupted procurement procedures in Hungary through the Socialist
Party. (Politics.hu)

In 2009, the Hungarian Ministry of Defense placed orders for three Force Protection Cougar armored
vehicles valued at USD$ 1.3M. This procurement also came under scrutiny due to conflicts of interest
within the MSZP party.

Most recently, on 28 July 2010, it was reported by Politics.hu that,

Minister of the Interior Sándor Pinter's former security company Civil Biztonsági Szolgálat Zrt.
received contracts to guard several state-owned institutions, hvg.hu reports. The main contract is
with the Hungarian Development Bank (MFB), but it also extends to several of the bank's
subsidiaries.

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Defining Corruption

Experts identify procurement as one of the areas most prone to corruption within the Hungarian
government. The last eight years have demonstrated that corruption has permeated all levels of
government, nearly every agency and organization, creating an environment where it was not only
accepted, but expected. Corruption in procurement engenders bad choices, affects the efficiency of
public spending and resources, creates waste and, ultimately, affects the quality of government
services and the opportunities they present to improve quality of life. Corruption also harms
companies that produce goods and services as it increases operation costs, reduces
competitiveness and, in the medium term, is simply not good business. (Mathisen)

Contracting is the primary means by which a government operates and public money is spent. In the
sense of the military, contracts are the vehicles for implementing public policy, as well as national
security policy. A significant portion of military expenditure goes to procurement or contracts for
goods and services. Preventing and controlling corruption in procurement is, therefore, a
determining factor in policy and project efficiency, not to mention a nation‟s overall security posture.
(Mathisen)

The term procurement is often used to describe military contracting. Procurement refers to the acquisition
of goods and services by any individual or organization (public, private, international, etc). However, it is
more accurate to refer to the term contracting, as it includes other activities that, in the shape of a contract,
channel government expenditure. Procurement is the actual purchase while contracting involves the
processes by which the procurement occurs.

How and Where Public Contracting Becomes Corrupted

Corruption in public contracting can take many forms, including bribery, deception (fraud) or simple
abuse. The risks of corruption in public contracting can be more easily understood in relation to each
stage of a contracting process. Most contracting processes broadly follow the same steps:

1. Decision to contract: identification of need;

2. Identification/definition of contract characteristics: what to buy/sell/do and description of goods
and services. These are the technical requirements.
3. Contracting process opens following a particular type of process (open bid, restricted bid,
shortlists, direct contracting, single source, etc);
4. Contract award ending with a decision to select the winning bidder;
5. Contract implementation and supervision

It is generally believed that the risk of corruption is especially high during the evaluation phase of a
contracting process, when offers are studied in order to select the contractor. But the risks are not
limited to this phase. Corruption can occur even before a contracting process starts, when decisions are
taken about what to contract. Some projects start off ear-marked for award to a particular party. There
is also room for abuse once the contracting process has finished and the contractor has been selected.
Underperformance, contract renegotiation, change orders, over-billing, and non compliance are just
some of the forms of abuse. (Mathisen)

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 Figure 1 - Where does corruption occur in the contracting process?

Fighting the Problem

It is important to distinguish between instances of corruption and cases of inefficiency or lack of

capacity. While these problems sometimes go hand-in-hand, and some solutions are helpful in all
areas, there are also trade-offs. For example, choosing to speed up a contracting process might
reduce its transparency, making it very efficient but more prone to corruption. Moreover, it is
important to realize that there is no single solution to the problem. Contracting processes need to be
permanently monitored. Supervision and control play a key role since good rules are necessary but
not always enough to curb corruption. It is also important to have clear and publicly available
procedures and to have regular audits by external parties. (Mathisen)

For many years, it was believed that the only way to fight corruption in public contracting was
through law enforcement and control. While this is clearly necessary, it often comes too late, after
the damage has already been caused. More importantly, corrupt behavior should be prevented by
giving those involved in contracting the opportunity to avoid it and the pressure to do so. (Mathisen)

Good rules, transparency and monitoring are three elements that help to prevent corruption in this area.

 In the case of absent rules or rules that can be manipulated to one's advantage, stakeholders
should assist governments in elaborating and enforcing procurement laws and procedural
guidelines, which comply with international standards.

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  The procurement rules should at least minimize confidentiality, state open bidding from pre-
qualified suppliers as a principle, guarantee access to information, and make sure bidding
documents, procedures, evaluations and awards are publicly and timely available. They should
also establish administrative review systems, foster objective evaluation criteria and provide
structures for it. These rules should ensure that the different procurement functions and
responsibilities (selection, quantification, product specification, pre-selection of suppliers and
adjudication on suppliers) are divided among different offices, committees and individuals, each
with the appropriate expertise and resources for the specific function.
 Access to information can be provided through documentation and communication systems,
including online systems, where information can be shared with auditors, complainants and the
general public.
 Efficient management is one of the most effective preventive mechanisms. It promotes
transparency and accountability, facilitates oversight and citizen participation, and brings
legitimacy to governmental decisions. Rules that follow these principles also provide a good
basis to prevent corruption.
Written procurement procedures should outline the whole process, using explicit criteria to
award contracts.
 Rules are not enough, however, and law enforcement mechanisms are often
weak. Monitoring by local experts and independent oversight agencies can help make existing
norms effective. Civil society also has an important role to play in monitoring. Transparency
International has developed and implemented a number of monitoring tools to increase
transparency and access to information that involve cooperation between governments,
companies, donors and civil society. Monitoring should also include an annual external audit.
 Stakeholders can also promote integrity in the private sector, e.g. through information
campaigns for small and medium sized businesses. It is the latter who lose out in corrupt
procurement deals as larger firms can more easily afford to position themselves vis-à-vis
decision-makers.

Some contracting or procurement problems stem from inefficiencies in the contracting system.
Some tools that help to correct these inefficiencies may also prevent corruption and vice versa. But
this is not always the case. For example, speeding up the procurement process may increase the
risks of corruption if transparency and accountability are not assured. Conversely, a strategy to
prevent corruption, if not implemented appropriately, may introduce unnecessary delays. This
means that a careful consideration of impact and implementation should be performed. Adequate
training of procurement officers, the establishment of multidisciplinary and multi-party evaluation
committees, rotation principles for procurement officials and the establishment of accountability and
report procedures, are key in fighting corruption. Incentives promoting 'good behavior' for individuals
are also needed. Systems usually plan punishment for 'bad behavior', but experience proves that
rewards for good behavior can motivate individuals. The development of codes of conduct for staff
is also extremely important. (Mathisen)

But ‘good behavior’ should be expected. There should be no reward for not breaking the law. Government
officials hold public trust; the public expects them to act ethically in the best interest of the nation.

As long as there is overt and covert corruption within the Hungary military‟s acquisitions process, the
military will never have the equipment it needs, its legitimacy will be questioned, and Hungary‟s overall
national security will be compromised.

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 Figure 2 - The Effects of Corruption on National Security in Hungary

The key to a strong, sustainable acquisitions system is that it be unbiased and neutral, accurate, thoroughly
documented, transparent, free of conflicts of interest, while occurring in a timely manner, able to address
the requirement at the time the need exists. A Capabilities Based Approach with Capabilities Based
Planning will lead to the development and delivery of solutions that provide value to the nation and those
charged with executing the mission of defending the nation.

Of any period in recent history, now is the time for Hungary to enact sweeping changes to protect its future,
increase its GDP, and reduce its debt. This process, while designed for military acquisitions, can be
leveraged in other areas of government. Moreover, this process can be used as a catalyst to create a
defense industrial base in Hungary, creating jobs, and reducing imports.

Specific Steps to Reform

According to Transparency International (Tranparency International Hungary), Public procurement

authorities should:

 Implement a code of conduct that commits the contracting authority and its employees to a strict
anti-corruption policy. The policy should take into account possible conflicts of interest, provide
mechanisms for reporting corruption and protecting whistle-blowers.

 Allow a company to tender only if it has implemented a code of conduct that commits the company
and its employees to a strict anti-corruption policy. [1]

 Maintain a blacklist of companies for which there is sufficient evidence of involvement in corrupt
activities; alternatively, adopt a blacklist prepared by an appropriate international institution. Bar
blacklisted companies from tendering for the authority’s projects for a specified period of time.

 Ensure that all contracts between the authority and its contractors, suppliers and service providers
require the parties to comply with strict anti-corruption policies. This may best be achieved by
requiring the use of a project integrity pact during both the tendering and project execution phase,
committing the authority and bidding companies to refrain from bribery.

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  Ensure that public contracts above a low threshold are subject to open competitive bidding.
Exceptions must be limited and clear justification given.

 Provide all bidders, and preferably also the general public, with easy access to information about:
- activities carried out prior to initiating the contracting process
- tender opportunities
- selection criteria
- the evaluation process
- the award decision and its justification
- the terms and conditions of the contract and any amendments
- the implementation of the contract
- the role of intermediaries and agents
- dispute-settlement mechanisms and procedures.

 Confidentiality should be limited to legally protected information.

 Equivalent information on direct contracting or limited bidding processes should also be made
available to the public.

 Ensure that no bidder is given access to privileged information at any stage of the contracting
process, especially information relating to the selection process.

 Allow bidders sufficient time for bid preparation and for pre-qualification requirements when these
apply. Allow a reasonable amount of time between publication of the contract award decision and
the signing of the contract, in order to give a competitor the opportunity to challenge the award
decision.

 Ensure that contract ‘change’ orders that alter the price or description of work beyond a cumulative
threshold (for example, 15 per cent of contract value) are monitored at a high level, preferably by
the decision-making body that awarded the contract.

 Ensure that internal and external control and auditing bodies are independent and functioning
effectively, and that their reports are accessible to the public. Any unreasonable delays in project
execution should trigger additional control activities.
 Separate key functions to ensure that responsibility for demand assessment, preparation, selection,
contracting, supervision and control of a project is assigned to separate bodies.

 Apply standard office safeguards, such as the use of committees at decision-making points and
rotation of staff in sensitive positions. Staff responsible for procurement processes should be well
trained and adequately remunerated.

 Promote the participation of civil society organizations as independent monitors of both the tender
and execution of projects.

While the above requirements for the removal of corruption are important, in military terms, national security
strategy, operational requirements, and equipment requirements must also be taken into consideration.
Simply removing overt corruption is not the only task to be accomplished.

The Need to Strategically Manage Acquisition

Implementation of a managed approach to providing capability to defense forces is complex and requires
consideration of a country‟s strategic goals, economic constraints, political will and actual needs. Most
pressing, from a military perspective, is answering the question of what is needed to accomplish the

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defense strategy. Furthermore, it is necessary to establish an appropriate management structure and
division of responsibility to carryout acquisitions.

Capabilities Based Planning (CBP) provides a systematic approach by which the acquisition of capability
can be performed holistically and strategically to ensure alignment with a nation‟s goals and to ensure an
audit trail to prevent waste and monitor performance. CBP is an overarching framework involving a
functional analysis of operational requirements. The figure depicts the phases and steps involved in CBP.

CBP Strengths:

 CBP works within a dynamic strategic environment

 CBP links acquisition decisions to strategic goals
 CBP provides an audit trail
 CBP prevents determining solutions prematurely
 CBP enhances visibility and the quality of information to decision-makers

A capabilities-based approach to acquisition focuses on identifying capabilities that a military force will need
to accomplish national priorities. CBP provides a means to lessen the financial and manpower burdens
associated with military goals and objectives through a managed effort that includes:

 A construct needed to meet current, new and emerging threats

 Focus on providing capability for those that defend a nation
 Resource and risk management as part of the decision process
 Better products and less re-work of the systems developed

Despite the recognized need, there is not usually a consistent approach to focus on delivering capability
based on priorities or goals. Thus, many of the planned materiel solutions emerge slowly, hinder or
complicate operations, or provide a stovepipe1 capability. Providing stewardship of a nation‟s precious
resources means that a capability must meet a stringent set of criteria, map to strategic goals and be
managed as portfolios of capability and resourced across a determined lifecycle.

The CBP process provides an analytic framework to establish the interdependencies among political and
military guidance; a defense forces‟ operational priorities; a managed acquisition process and within
resource constraints. The ultimate goal is to ensure that military capability is procured based on a strategic
assessment of government guidance, existing military capabilities, and future military needs. Acquisitions
must be made in concert with national goals and within resource constraints while being managed as
formal activities within an overall portfolio of capability.

Strategic Planning

Executing CBP requires a systematic approach to ensure successful implementation. This requires
establishing strategic goals, obtaining support from government and military leadership, establishing a
decision framework, managing risk, looking near/mid/long term, establishing standards and guidance and
implementing and evolving the framework.

National Goals & Objectives Supported by Policy

Adoption of CBP requires a strong commitment to justify the organizational obligation and investment, such
as flexibility in addressing current and future adversaries and their strategies. Therefore all activities must
be tied to national goals and objectives and established policy to derive high-level capability objectives.
These policy goals support the use of top-level concepts, doctrine or some overarching operational concept

1
Stove-pipe - systems procured and developed to solve a specific problem, characterized by a limited focus and functionality,
and containing data that cannot be easily shared with other systems
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that considers how nation‟s forces will operate and fight. Additional sources should be considered such as
non-governmental organizations and the private sector to ensure the full scope of cooperation is addressed
as they relate to national policy goals and homeland defense related strategies. These, specific policy
goals, derived from top-level government guidance, should cascade into strategic policy and operational
documents, and then into the CBP process and its planning outputs.

Stakeholder Involvement

Critical stakeholders2 must be involved from both a government and military perspective as both groups
provide input and decision making into the control of the information, resources, and authority required to
support or execute projects, programs, or actual operations based on the outputs of CBP. It is important
that stakeholders take ownership based upon the balance of power within the government and military.
The President, Prime Minister, Council of Ministers and the National Assembly as well as the Land and Air
Force component commanders make up the key stakeholders and must take into consideration the full
range of needs based on Hungary‟s goals and strategic
location. As such it is important to consider stakeholders
such as county or local government. Therefore, top
leadership support, involvement, and decision-making
are critical to CBP success. For defense, support must
truly start at the top of cabinet departments and
ministries and must be sustained. Top military and
civilian officials are responsible for CBP and should be
held accountable for its success.

Management Decision-Making Process

A well-designed and implemented decision process for

CBP is a critical element for success. This process
should capture tasks and capabilities needed to carry
out missions and their priority, how they relate, and
solutions for meeting those needs. The output of this
decision-making process results in a nation‟s forces
having the capabilities needed to perform across the range of military operations and challenges supported
by an integrated, collaborative review process. The three decision-making processes include use of:

 Requirements System
 Acquisition System
 Planning and Resourcing System

Key investment decisions must revolve around the near‐term delivery of solutions that reach the military
forces quickly and provide tangible and demonstrated results along with applicability to multiple missions or
national/military needs. As
part of a CBP approach,
assessing capabilities as Requirements Development Process
early as possible improves
visibility, support and
resourcing those results in
Capabilities Analyze Acquire &
relevant fielded systems or Based
DOTMLPF Formalize
Alternative Deploy
Analysis Requirements
capability. Increased Assessment Solutions Capability
attention can be given to
projects that emphasize
rapidly fielded solutions to = Decision Point

support agreed upon national

2
Stakeholder - a person, group or organization with an interest in a project.
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and defense objectives. Through the CBP process, government and defense leadership, with a broad
range of expertise, can agree upon strategic direction which facilitates selection of investments to provide
capabilities that meet the broader needs of a nation and focuses on a full range of operations: warfighting,
counter-terrorism, humanitarian assistance, disaster relief, and information sharing. Through CBP,
capability delivered will have been addressed from a Doctrine, Organization, Training, Material, Leadership,
Personnel, and Facilities (DOTMLPF) perspective which ensures that the financial contributions,
man‐hours, technology, infrastructure and prior investments were taken into account along with the
interests of those that make use of the capability and their demand to be successful in their missions and
operations.

Requirements System

The Requirements system involves requirements development - eliciting, analyzing, validating, and
communicating requirements. Requirements are analyzed in order to define the required capabilities of a
potential solution that will fulfill a military need. It covers the definition of stakeholder requirements, which
describe what a solution must be capable of doing to meet the needs of one or more groups. In addition,
during the requirements development process, the current „state‟ of the organization is modeled. These
models are useful for validating the solution scope and assessing alternative solutions with government
leadership and military leadership in order to identify the appropriate solution to meet the stated military
requirement.

Requirements development also encompasses identifying gaps and redundancies in the portfolio of
capabilities, which presents the opportunity to prioritize acquisitions and improve collaboration among all
stakeholders. The figure below depicts a process whereby a Capabilities Based Assessment is performed
followed by a DOTMLPF analysis in order to fully understand the current state of the organization by
capturing what, exactly, is needed to achieve mission accomplishment. A decision is then made to
formalize these findings into requirements upon which a decision is made to analyze alternative solutions to
meet those requirements. Finally, a decision is made to acquire and deploy a capability that is tied to
formalized requirements driven by government guidance and military priorities as part of the CBP process.

Mission-Based Planning Scenarios

Planning scenarios need to be developed, as part of the requirements development phase, to help
determine what capabilities are needed by the military force. To execute CBP, proper scenarios are
necessary on which to base planning and/or exercise to validate the capability or need. Defense capability
should be assessed using plausible situations encapsulated in planning scenarios. These scenarios provide
the context of CBP and should cover the full spectrum of military activities. The scenarios help develop
realistic capability goals and the provision of a defense force meeting government requirements at a
minimum cost. These scenarios must look at internal and other engagement environments, the events
leading up to the conflict situation and consider the international setting and the attitudes of allies, allies of
the enemy and neutrals. They should also detail the political aims of the government and its military
strategic objectives. All strategic scenarios, taken together, in principle largely define overall defense
requirements for example military, anti-terrorism and counter-narcotics engagements.

Capability Development and Standard Categories

As part of the validation of the capability need, or delivered capability,

guidelines must exist to develop standard capability categories, which
form portfolios of managed capability. Capabilities are seen as the
end of a “waterfall” of lower levels of mission used in functional area or
capability area analysis. Functional or capability area analysis is
broken down into categories such as command and control, logistics,
and force management. Another option is operational or ends-
focused. Operational categories might include land combat, air
operations, counter terrorism, counter narcotics, or civil support. Each
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category then would be further defined. To illustrate, force management would include force employment
and force deployment.

Acquisition Process

The acquisition process should exist to provide a simplified and flexible management framework for
translating capability needs and technology opportunities, based on formally defined requirements, into
stable, affordable, and well-managed acquisition programs that include weapon systems, services, and
Information Technology (IT). Put simply, the military needs to field militarily useful solutions quickly in order
to counter ever-evolving threats. Acquisition processes have to be tailored to expedite the rapid delivery of
capabilities that meet urgent military needs. When properly executed, the acquisition process provides a
rational basis for making acquisition decisions in a very timely manner. This acquisition process involves
parallel activities occurring within a well-defined framework that synchronizes these parallel activities
toward common goals. The first phase of this framework drives both management and engineering
activities to arrive at a common understanding of the needs to be addressed. The second phase of the
acquisition framework drives management and engineering activities toward a common understanding of
the solution that will meet provide the needed capabilities. The third phase of the acquisition framework
involves the activities required to develop the solution and validate that the solution in fact delivers the
capabilities it was designed to deliver. The final phase of the acquisition framework deploys the solution to
ensure delivery of the needed capability.

Rapid Acquisition

Rapid acquisition requires collaboration among the user, tester, and developer. In this process, a needed
operational capability is met over time by developing several increments, each dependent on available
mature technology. Technology development preceding initiation of an increment shall continue until the
required level of maturity is achieved, and prototypes of the system or key system elements are produced.
Successive Technology Development Phases may be necessary to mature technology for multiple
developments. Each increment is a useful and supportable operational capability that can be developed,
produced, deployed, and sustained. Each increment will have its own set of threshold and objective values
set by the user. Block upgrades, pre-planned product improvement, and similar efforts that provide a
significant increase in operational capability and meet an acquisition category threshold specified in this

document shall be managed as separate increments under this Instruction. Lastly, each acquisition must
ensure that a delivered capability meets the military‟s needs and be managed to achieve established cost,
schedule, and performance goals.

Risk-Based Acquisition

A key tenet of CBP is addressing affordability and sustainability, which means that not all capabilities can
be deployed or maintained perpetually. Affordability and sustainability require addressing risk and its impact
on capability development and deployment and assessing risk impacts over time. Risk is a multifaceted
issue and must be addressed with methods that are appropriate for the investment decisions being made.
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Organizations need a systematic process to understand and priorities risks so that limited resources can be
effectively applied to reduce risk. The figure below characterizes the foundational elements for developing
an understanding of risks so that they can be effectively managed.

Balancing investments during CBP requires making

Understanding investments as well as divestments of capability in
Risk
response to changing government priorities and military
need. Managing risk means changes have to be made in
How likely is
it?
What can go
wrong?
What are the
impacts?
operating practices, business practices, and infrastructure.
These dimensions reflect the need to balance strategy,
Foundation for Risk Assessment force structure, and resources. Risk also looks at
Historical Analytical Knowledge and opportunity to take advantage of the ABCs of: Adopting
Experience Methods Intuition existing solutions that can be adapted and scaled; Buying
products and/or managed services that already exist with
the “right stuff” to meet requirements or, as a last resort,
lead a development effort to Create a new solution. These ABCs can look internal, throughout the
European Union or a broader global solution market and take advantage, where applicable, of bilateral
agreements etc. Risk-Based acquisition is about 1) identifying those high-risk specifications that need to be
met by the project and 2) working on those items early to assure that they can be effectively mitigated.
The overall desire is to resolve issues early-on before spending a considerable amount of resources
(people, time and money) pursuing a path only to realize the acquired solution fails to meet the military‟s
needs.

Planning and Resourcing Process

A planning and resourcing process allocates resources to capabilities deemed necessary to accomplish the
goals and objectives identified as national priorities. The ultimate objective is to provide the optimal mix of
forces, equipment, and support attainable within established fiscal constraints along with thorough analysis
and matching of resources against requirements. This process provides for continuous evaluation to
ensure individual programs are providing the expected benefits. This approach is supports upfront resource
allocation decisions with a review of the effectiveness with which funding is being used to accomplish the
assigned military missions and summarizes forces, resources, and equipment associated with all approved
acquisitions.

Conclusion

As already described, the key to success is a broad and long-term strategic perspective, a greater
appreciation of the operational and strategic environmental factors, and a rigorous analysis of the
capabilities needed to achieve defense policy goals. Additionally, effective CBP is enabled by a robust
industrial base capable of designing, building and delivering what the defense industry requires. Key
characteristics of this industrial base are competition, a capable workforce and a stream of new programs.
Competition among suppliers fosters innovation
and lowers cost as companies compete for the
privilege of delivering planned capabilities.
Further, delivering these capabilities may require
specific skills not always readily available in the
commercial industrial base. Finally, a steady
stream of new programs over time is necessary
to provide the industrial base the work necessary
to keep the companies viable. The analysis to
foster these three characteristics must be
integrated into the CBP analysis and integrated
into the budget process.

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Providing a new management structure for acquisition will drastically improve the posture of the defense
forces with a focus on Hungary‟s strategic goals, economic constraints, political will, and actual needs. A
Capabilities Based Approach with Capabilities Based Planning ultimately will result in rapid acquisition,
collaboration among stakeholders and development of a robust industrial base. It is a process that ensures
Hungary‟s national security apparatus has the best solutions available at the best value to meet the actual
requirement, while promoting economic development in an industry that has far-reaching value outside of
Hungary. Most importantly, this system creates transparency, which assists in the removal of corruption.

The Hungarian MOD could enact this approach to military acquisitions quickly in order to make immediate,
decisive, and effective changes. This methodology does not affect national security strategy, but helps
reinforce it, ensuring that Hungary is equipped and prepared to defend its interests.

Works Cited

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Mathisen, Harald. www.u4.no. <http://www.u4.no/themes/health/procurementintro.cfm>.
Politics.hu. 11 06 2010. <http://www.politics.hu/20100611/socialists-slam-hungarys-new-accountability-
commissioner>.
Politics.hu. 04 05 2010. <http://www.politics.hu/20100504/hungary-new-defense-minister-to-fight-
corruption-improve-foreign-mission-safety>.
Politics.hu. 04 06 2010. <http://www.politics.hu/20100604/navracsics-says-cabinet-to-fight-corruption>.
Politics.hu. 21 08 2008. <http://www.politics.hu/20080821/swedes-deny-closing-probe-into-hungary-fighter-
plane-sale>.
Tranparency International Hungary. "Position Paper on Public Procurements (www.transparency.hu)." 26
09 2008. Transparency International Hungary.
<http://www.transparency.hu/files/p/en/427/7183257167.pdf>.

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