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Should-cost review can be alternative to formal contract proposal

Sep. 2, 2012 - 02:30PM   |  
By JAMES GILL   |   Comments

There is now a requirement to perform “should-cost” reviews on all major defense acquisition programs that are coming to defense leadership for milestone reviews. These “should-cost” reviews are time-consuming, resource-constraining and costly, to government program offices and to the contractors supporting the review teams.

What if these “should-cost” reviews could serve as an alternative to the formal proposals that are required to assure contracting officers the government is paying a “fair and reasonable” price for the goods and services being acquired? Since these “should-cost” review teams are led by senior government leaders and supported by the contractor’s senior management, why wouldn’t the resultant “should-cost” recommendation be a reasonable basis for a contract award? At the least, both parties should walk away from the “should-cost” review with an understanding of what each party believes the effort should cost.

If we accept this hypothesis, then there is no need for a formal proposal, which can cost millions of dollars. It would eliminate the prolonged fact-finding and negotiation process, which also often takes many months to complete and costs millions of additional dollars. It would free up many individuals supporting these negotiations to accomplish more productive work on the program.

This is outside-the-box thinking and would require a waiver to the requirement for certified cost and pricing data under the Truth in Negotiations Act. To realize substantial savings and avoid having to process a separate waiver for each major defense acquisition “should-cost,” perhaps a class waiver could be processed.

As we move away from traditional approaches to putting dollars on contract, we need to use good judgment in shortening the cycle time that drives additional costs to major programs. While “should-cost” reviews are indeed costly and time-consuming, they should result in a price of high confidence in terms of schedule, cost and technical considerations. That information is critical in assessing the reasonableness of the resulting contractual arrangement with the contractor.

If there is concern regarding the terms and conditions the contract would include, these would be identified in the draft request for proposal provided to the contractor before the “should-cost” review. The “model contract” could be a point of discussion during the “should-cost” and would serve as a reference point for the respective “should-cost” teams to follow. Profit would be a separate discussion that would be the subject of a modified clearance review process. Even when receiving a proposal, profit is the subject of separate discussions from the rest of the technical review.

Why would there be resistance to this concept? A conservative point of view would say there is little protection for the contracting officer if a post-award audit determines the award was not “fair and reasonable.”

There is always risk that even with a formal certified proposal, there may be criticism of the negotiation team’s work. The defense against that criticism is that the “should-cost” review normally will provide more analysis into the reasonableness of the price than any proposal review team would be able to accomplish.

What would happen if the government and the contractor disagreed on the “should-cost” number? The same thing that happens after a proposal review impasse — the negotiation team elevates to senior leadership for resolution. With the “should-cost” review involving many of these leaders, there should be recognition of these areas of disagreement before the “should-cost” report is published. The resultant elevation would shorten the time needed to reach these more senior leaders.

One of the biggest complaints from industry is that these large-dollar negotiations take too long, are too costly and use resources needed for other purposes. With the additional burden of conducting “should-cost” reviews, perhaps an outside-the-box suggestion such as this would ameliorate some of their concerns.

It would require a strong commitment from defense leadership, but it would also show recognition of the problem and commitment to implementing alternative processes where they make sense.


James Gill works at the U.S. Space and Missile Systems Center, Los Angeles Air Force Base. The views expressed are those of the author and do not represent those of the Air Force.

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