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Procurement chief says DoD won't target contractor profits

Nov. 30, 2011 - 06:00AM   |  
By ZACHARY FRYER-BIGGS   |   Comments
Shay Assad, the Defense Department's director of procurement and acquisition policy, made his comments Nov. 30 at the Credit Suisse 2011 Aerospace & Defense Conference.
Shay Assad, the Defense Department's director of procurement and acquisition policy, made his comments Nov. 30 at the Credit Suisse 2011 Aerospace & Defense Conference. (Staff file photo)

NEW YORK Even with the Pentagon looking to make widespread cuts and improve efficiency, profitability is not a target and it may increase, the Defense Department's director of procurement and acquisition policy told an audience of investors Wednesday.

Speaking at the Credit Suisse 2011 Aerospace & Defense Conference, Shay Assad said that the Pentagon is concerned with cost reduction, not margin reduction, and that he would be surprised if profitability went down even as spending is decreased.

"It wouldn't bother us at all if operating margins go up, so long as we're paying less," he said. "We want to spend 90 and have them make 15, we don't want to spend 105 and have them make 15."

Assad outlined a number of areas where he said savings could be found, focusing on the Better Buying Power initiative as a framework for increased efficiency and better contract management. Specific areas of focus include subcontractor management, contract type and overhead reduction.

Although profitability is not a target, the process of increasing efficiency will still be a challenge for companies, Assad said.

"Make no mistake about it, we're going to push them to be better," he said. "We should, that's what companies do to each other every day."

Defense acquisition work force improvement also will be critical to better contract management, Assad said. "It's part of just saying, wait a minute, if Boeing was dealing with Raytheon, they'd have pros at the table."

Speaking to reporters after his presentation, Assad said Defense's efforts are not new but rather the implementation of previous practices that have become less prevalent.

"There's really no acquisition reform going on here."

The conference, which included presentations from the heads of a number of defense contractors, drew the attention of protesters, several dozen of whom blocked the front entrance to the Credit Suisse offices on Park Avenue. Their signs included references to war profiteering, as well as the Occupy Wall Street movement, and hecklers called to attendees.

"It's not too late to quit your job," one young woman shouted.

Police and security personnel directed attendees to a side entrance.

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