Pentagon officials have created five teams to lead the effort to improve efficiency across the Defense Department, according to the Army's acquisition executive.

Each team will work on a different area that the Pentagon believes can lead to cost savings, said Malcolm O'Neill, assistant secretary of the Army for acquisition, logistics and technology, in an Aug. 31 interview.

Those areas are affordability, incentives, contract terms, metrics and service contracts.

In June, Defense Secretary Robert Gates announced he wanted to find $100 billion in overhead savings over the next five fiscal years, starting in fiscal year 2012.

"This thing is very significant for the Defense Department," said O'Neill.

"We estimate we can probably save 2 to 3 percent of the DOD budget every year."

Service contracts are an important area for the Army as 58 percent of the service's $585 billion in active contracts goes toward service contracts today, Lt. Gen. William Phillips, O'Neill's military deputy, told a C4ISR conference in Baltimore on Aug. 25.

The Army is the only service represented on all five teams and chairs one of them, according to O'Neill, who began his job in March.

O'Neill was part of a group that met for hours on Aug. 29, working with Pentagon acquisition executive Ashton Carter to hammer out some of these issues.

"We worked all day Sunday on this with Ash," said O'Neill. All of the services were represented at the meeting, as well as officials from the Missile Defense Agency and Special Operations Command, he said.

The efficiencies teams are heavily focused on contracting because each year approximately $400 billion of the Pentagon's $700 billion budget is spent on contracts for goods and services.

Industry can expect to see more fixed-price/incentive-fee contracting, said O'Neill, adding, "We don't use that quite enough."

Carter also wants the services to start thinking about affordability at the outset of a program not halfway through, O'Neill said. This may include using "affordability targets" at program milestones. At milestone A, an affordability range could be used, because it is still early in the program to identify an exact cost, said O'Neill. As the program continues through development, the range could narrow into a more precise target, he said.

For example, with the Army's Ground Combat Vehicle (GCV) program, if the vehicle's cost exceeds the target, then the Army may decide it is no longer worth pursuing, said O'Neill. Instead, the Army could look at upgrading Bradley Fighting Vehicles as a more cost-effective solution.

For incentives, the question is what will really make a difference to the contractor, said O'Neill.

"One of the things we were talking about was it might not necessarily be a concern as to how much profit a contractor makes as long as the cost to the government is lower, the product is better and more sustainable," said O'Neill.

While the Pentagon and the Army are looking to reduce overhead costs, they are also trying to follow the recommendations of the Gansler report, which called for increasing the size of the acquisition work force.

That effort continues, said O'Neill, but he has also told Carter that if he sees unnecessary overlap of jobs or functions, he will make cuts.

"But we have been told that they are not going to trouble and try to change the conclusions of the Gansler report, which says we need more experts in contracting, we need more acquisition experts," O'Neill said.

The savings are not intended to be instantaneous. The reforms put in place and the new contracts signed will take time to produce savings, said O'Neill.

"We should see the savings every year in the [program objective memorandum], fewer savings in FY12, but by 2016, you should be able to see that we can do our job significantly more effectively," said O'Neill.