Thornberry takes aim at commercial items, contract audits and services contracts

The Defense Department could be the next big player in commercial, online marketplace commerce if the new acquisition reforms proposed by House Armed Services Committee Chairman Mac Thornberry (R-Texas) make it into law.

Thornberry released his third annual acquisition reform bill to the public today. This year he takes aim at DoD’s ability to buy commercial products, contract audits and services acquisition with an 80-page bill that will eventually be folded into the 2018 defense authorization bill.

The bill tries to encourage DoD to buy commercial off the shelf products through e-commerce marketplaces. Think something like Amazon, where the marketplace aggregates products from multiple vendors.

DoD already uses a system like that called DoD EMALL, but that is an area where vendors only sell to the government.

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Thornberry’s bill requires DoD to enter into one or more private marketplaces used by commercial companies. Grainger Industrial Supply, OfficeMax or Staples are all examples.

“Because we are tapping into an existing commercial marketplace we can leverage all the features of this mini free market. Inherent in this commercial marketplace is market research … also competition is built in. It’s its own mini free market, so prices are reasonable. The market is clear. The prices are the appropriate, best, most reasonable price for the item,” said a House Armed Services Committee aide during a May 17 meeting with reporters.

The aide said by entering into the marketplace DoD may be able to save money and also get products to the warfighter faster because it would alleviate requirement burdens from program managers.

The marketplace idea is getting mix reactions from industry as Federal News Radio reported earlier this week.

This idea of changing commercial buying rules for DoD has a lot of supporters and detractors. The supporters like the potential doors it opens up for new vendors, quicker and simpler contracts. The detractors, however, say the vendors who have invested heavily in the federal market with systems and processes to track and sell commercial items may not like the opening up of the regulations, one source said.

Audits

Thornberry is also taking on the auditing burden in the Defense Contract Audit Agency (DCAA).

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DCAA is dealing with an incurred cost audit backlog that is currently more than 4,000 contracts deep. The agency is expected to shore that gap by the end of 2018. Thornberry thinks DCAA is wasting its time on smaller contracts, however.

DCAA audits incurred costs, those are claims from companies working for DoD. Some costs are reimbursable under a company’s contract with DoD. The DCAA looks into those contracts to make sure they are up to snuff.

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One committee aide said it takes DCAA an average of 885 days to close out an incurred cost audit, even though those audits only account for a small amount of savings.

Thornberry’s bill will raise the cost threshold for contracts DCAA will have to audit. The goal is by 2020, 25 percent of incurred cost contracts will be done by a private auditor.

That may create some savings in headquarters costs. DCAA has had to add to its staff to keep up with the demand.

DCAA was planning on hiring 100 people a month and began doing that in the first quarter of fiscal 2017, until the hiring freeze was implemented by President Donald Trump. DCAA Director Anita Bales said the agency would need 500 more employees or about 10 percent of its current workforce to do its audit portfolio.

“We are really getting behind the power curve on our ability to execute the work we need to this year and the later we hire in the year, at this point there is probably no way we can hire enough to complete the number of work years that we need to this year,” Bales told the House Armed Services Oversight and Investigations Subcommittee last month.

Service contracts

The Defense Department has a service contract problem, according to some experts and lawmakers. It spends $144 billion a year on services contracts and it has a lot of trouble overseeing those contracts.

In 2014, Sen. Claire McCaskill (D-Mo.) wrote to DoD stating that the department was using four different contract management systems, which left $58 billion of the $187 billion in service contract obligations unreported in 2012.

Thornberry’s bill seeks to change some of that, requiring DoD to collect and analyze the information necessary to plan better for contracted services.

“Tying the services contracting process to the annual budget submission will improve transparency and accountability, while also allowing Congress to exercise better oversight,” a factsheet on Thornberry’s bill stated.

One committee staffer said DoD has very little information on what its contracting and what DoD is getting for it.

The staffer said services requirements are evaluated late in the budget process and often without the right strategic focus.

“DoD doesn’t ask could we contract at a lesser amount or not contract at all,” the staffer said.

The bill tries to empower better decision making by requiring DoD to make decisions on services contracts earlier, requiring more detail on contracts and requiring a shift in focus on how DoD evaluates its services contracts.

What’s next

Thornberry’s bill will now be circulated around Congress, DoD and the public for comment. From there Thornberry will make adjustments to the bill and fold it into the 2018 NDAA.

The process usually takes about a month. In the past, Thornberry’s bills have given more power to the military service chiefs for milestone authorities and reduced some of the paperwork burden on program managers.