Two years ago, Defense Department acquisition officials rolled out new guidance aiming to reform Pentagon purchasing practices.
Now, Frank Kendall, the undersecretary of Defense for acquisition, technology and logistics, is promising a Better Buying Power 2.0, which will tweak some of the original guidance.
That’s good news to many in the defense industry, who hope the changes provide more nuanced guidance — as opposed to strict blanket policies — to agency contracting officers.
Stan Soloway, president and CEO of the Professional Services Council, told In Depth with Francis Rosethe time is ripe for an update.
“Any time you have initiatives in government, you have to a) revisit them, and b) update them,” he said. “If you leave them static, it’s hard enough to get them off the shelf. But if you keep moving, and you keep refining them, and keep the messaging going and so forth, I think it’s very helpful.”
Soloway’s group, a trade association which represents many of the largest defense contractors, wrote to Kendall urging changes in three particular areas.
The original guidance called for limiting the lengths of most contracts to three years in a bid to increase competition.
But DoD officials have acknowledged the provision has been “either over-interpreted in the field or overstated in the initiative,” Soloway said.
“There are going to be many cases where a longer contract length makes sense for the government, and competition just for the sake of competition doesn’t get you anything,” he said. For competition to matter it must be used as a tool to drive greater efficiency and innovation, he added.
Further, in many cases, a three-year window isn’t adequate for the work being performed, he said. Instead, the solution is looking at contract length as a “reflection of the mission requirement, rather than having contract length be a predetermined, arbitrary factor,” Soloway said.
Cost vs. value
Another area Soloway’s group hopes Kendall and DoD procurement officials tackle is the “overwhelming tendency” of agencies — according to PSC’s letter — to use lowest-price technically acceptable (LPTA) contracting methods.
Under LPTA, if a company’s bid meets the minimum technical qualifications for a piece of work, agency buyers are instructed only to consider a bidder’s price to determine the awardee.
Soloway said, in practice, agency procurement officials should more carefully weigh the tradeoffs between cost and technical specifications.
“We’re not talking about gilding the lily here; we’re talking about reasonable cost and technical tradeoffs,” Soloway said. “We’ve seen those go by the board in favor of this kind of myopic focus on cost.”
Cutting profits in cost-reduction efforts
In the current budget climate, agencies are mindful of making sure contract awards are not swallowed up by excessive profits to companies.
“What we’re seeing agencies do is not looking at appropriate profits for the work being done … But instead arbitrarily just sort of pressuring the profit side as a means of meeting cost targets,” Soloway said.
The profit margins earned by defense contractors “tend to be modest,” often less than those earned for work done in the private sector according to the group’s letter.
As with contract length, profits should match the nature of the work — and the amount of risk companies assume in carrying out the work, Soloway said.
“What we’re saying is don’t overpay … But you have to give reasonable returns on investment for companies to invest in people, to invest in innovation, to invest in performance,” Soloway said.