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DoD unveils buying guidelines for ‘new era'

Sep. 15, 2010 - 06:00AM   |  
By JOHN T. BENNETT   |   Comments
A 17-page directive focuses on five contracting "points of high ground," said Pentagon acquisition executive Ashton Carter.
A 17-page directive focuses on five contracting "points of high ground," said Pentagon acquisition executive Ashton Carter. ()

The program managers who develop and buy U.S. weapons will soon need to weigh affordability as they would performance attributes such as speed and lethality, according to new rules unveiled Sept. 14 by Defense Secretary Robert Gates and Pentagon acquisition executive Ashton Carter.

The officials said the new rules are needed in a "new era" defined by flat or shrinking budgets and the explosive growth, since 2001, of outsourced support services.

Since 9/11, program managers have been able to throw money at problems, but those days are over, Carter told reporters at a Pentagon briefing.

A 17-page directive focuses on five contracting "points of high ground," Carter said. They include:

"Target affordability and control cost growth."

"Incentivize productivity and innovation in industry.

"Promote real competition."

"Improve tradecraft in services acquisition."

"Reduce non-productive processes and bureaucracy"

Each of the five comes with a handful of initiatives and goals, more than 20 in all.

Gates said program managers must set affordability targets that can only be changed with the approval of the DoD acquisition executive.

At Milestone B, managers must show Pentagon acquisition officials how the cost of the platform would change as more subsystems and features are added.

Carter said Pentagon brass likely would omit some capabilities when likely costs get too high.

DoD acquisition leaders also will require the kind of "should cost" analysis that led Pentagon officials to revamp the F-35 program.

Last year, Carter said he wasn't satisfied with what the F-35 program office and prime contractor Lockheed Martin told him the new fleet of jets "will cost." Carter told Gates the Pentagon should not pay that price, prompting a DoD review to find what the F-35 program "should cost."

Gates, Carter and other defense officials have been meeting semi-regularly with industry to craft the new rules. The duo said they attempted to write them in a way that will incentivize companies to keep down the costs of new platforms.

For instance, if a prime contractor delivers a new fleet of combat platforms in line with the Pentagon's "should cost" analysis, that will mean "higher profits" for that firm, Gates told reporters.

This approach already was used on the Navy's next-generation nuclear submarine, they said. The review helped bring down the expected cost of that program "by 16 percent on route to 27 percent," Carter said.

‘Incentivizing' Performance

The Pentagon also plans to "adjust progress payments to incentivize performance," according to a summary of the new rules.

Carter repeated several times that the idea is to keep a healthy industrial base by having policies that give companies every reason to design, develop, build and deliver weapons at a lower cost to the U.S. taxpayer.

Gates said that meant higher profits for contractors who do so.

The officials announced they will expand the Navy's "Preferred Supplier Program" to a DoD-wide pilot project. It rewards companies that regularly perform well.

In a statement, Aerospace Industries Association President & CEO Marion Blakey said: "We are particularly encouraged by Secretary Gates' and Undersecretary Carter's express attention to the partnership between government and industry and 'managing together to a new era.'"

AIA has "questions regarding some of the proposals, we are confident that the cooperation between government and industry as these initiatives are developed and implemented will produce results that will benefit all stakeholders most importantly, the warfighter and taxpayer," Blakey said.

To promote "real competition," the new rules will require program offices to present to DoD acquisition officials "a competitive strategy at each ... milestone," according to the summary. The guidelines also will do things like giving firms ample time to form a bid and "require non-certified cost and pricing data on single offers" both are aimed at getting more than one company to bid.

Too often now, Carter said, only a single defense firm will seek a contract. And too often in those cases, the Pentagon pays too much.

In other cases, like the Navy's Littoral Combat Ship (LCS) effort, two design teams were aiming to keep building ships when a service had planned to eventually down-select to just one design. In such instances, the Pentagon's costs went up that can't happen in this "new era" of smaller DoD budgets, the buying chief said.

The new guidelines also are tailored to "reinvigorate industry's independent research and development and protect the defense technology base."

To reform how the military buys support services, the Pentagon will: move to a common "taxonomy for different types"; following the Air Force in creating a "senior manager for acquisition of services" within each military branch; and "address causes of poor trade craft in services acquisitions," states the summary.

Several of the main points call for bringing in small businesses more often.

Additionally, the guidelines call for reducing the number of "non-productive processes," things like internal reviews and reports for Congress.

A related provision sates DoD will "reduce non-value-added overhead imposed on industry."

Finally, the department seems to have heard industry's gripes about how the Pentagon audits major programs. Industry submitted hundreds of recommendations this summer to DoD to help shape the guidelines, and reforming the defense contracting audit arms bubbled to the top of many such lists.

Industry advocates say unneeded overhead and heavy-handed audits drive up companies' costs, and in turn, the price DoD pays for new platforms.

The new guidelines will "align" Pentagon auditing agencies' "processes to ensure work is complementary," states the summary.

Carter is slated to meet with industry executives about the new guidelines Thursday in Washington.

Gates has set a target of shifting $101 billion over five years from overhead and other costs to weapons procurement.

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