In new ‘how-to’ guide, Pentagon’s innovation outpost urges rest of DoD to adopt rapid acquisition

The Pentagon’s Defense Innovation Unit-Experimental thinks it’s learned a thing or two about rapid acquisition over the year since its initial standup, and sees no good reason why the rest of the Defense Department can’t use the same techniques it’s put in place to award new contracts in 60 days or less.

DIUx published a 99-page “how-to” guide on Wednesday, aiming to walk the rest of DoD’s sprawling acquisition community through the legal and practical aspects of the contracting practices it’s used to award $36 million in a dozen small contracts thus far, each focused on developing new prototypes for future military systems.

“For us to drive a real culture change, it’s not enough for DIUx itself to be successful — we need to build momentum,” Lauren Schmidt, DIUx’s pathways director, said at a forum hosted by the Center for a New American Security. “We wanted to pull all of this together to share our experiences in using these new legal authorities and deploying them to broaden our industrial base, so hopefully others can build on our experience and accelerate the acquisition process. We’re hoping we can really drive acquisition innovation across DoD.”

The contracts DIUx has awarded to date involve a technique the office calls a “commercial solutions opening,” which sidesteps many of the usual procurement steps required by the Federal Acquisition Regulation (FAR). It lets the government enter into one-on-one negotiations with firms based on their proposals to solve a particular technology problem, and intellectual property rights are fully negotiable. Federal rules that require, for example, compliance with government cost accounting standards are waived.

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Congress explicitly authorized DoD to pursue the streamlined approach as part of last year’s Defense authorization bill over fears that the traditional procurement process could not keep pace with the technological advances of near-peer foreign nations. The relevant portion of the bill was mostly a reinforcement of Other Transition Authorities, which allow DoD to enter into procurements outside the FAR and have been on the books for decades.

But so far, DIUx is the only Defense organization that’s even started to implement the new authorities, said Bill Greenwalt, a senior congressional staff member and the Senate Armed Services Committee’s point person on acquisition issues.

“The way we look at it is someone needs to start driving some of these acquisition reforms, and if it’s not DIUx, it has to be someone else. I don’t see anybody else on the horizon at the moment,” he said. “Other Transaction Authority has been allowed to just atrophy away. There are only a few contracting officers in the entire Department of Defense who still even know that it exists and how to use it. The other issue is that someone in DoD needs to understand how commercial companies think.”

Greenwalt said most of the department’s acquisition bureaucracy is disinclined toward finding innovative approaches to make business deals with nontraditional contractors.

“The traditional acquisition workforce says, ‘Well, what’s wrong with cost and pricing data? What’s wrong with government cost accounting standards? What’s wrong with having unique oversight and having 15 different auditors come to you every day?’ Greenwalt said. “That’s not the way that Google and Facebook and everyone else we want to talk to thinks. And if they’ve got the technology, we have to start changing the way we think. That’s what DIUx is trying to do, and from a Senate perspective, why we think they’re doing a great job.”

Mathew Blum, the associate administrator in OMB’s Office of Federal Procurement Policy, said the Obama administration is actively looking to emulate many of DIUx’s features throughout the federal government’s civilian agencies as well.

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In March, OMB told all agencies to assign “acquisition innovation advocates” and create their own internal laboratories to test and document new acquisition practices. The White House is focused on four broad areas to push acquisition innovation: building senior management support, information sharing, talent development and improving access to new commercial entrants.

“DIUx is capturing all four of those,” Blum said. “First and foremost is the cultural challenge. We’re not suggesting that every single agency needs a DIUx — they all have very different missions, which is why we want them to create labs that work for their mission. But the lesson to be learned from DIUx is that you had the secretary behind it; there was departmental commitment. That sort of backing and encouragement is going to be critically important to a workforce that oftentimes is confused about, ‘Hey, are these authorities for real? Do they really want us to implement them?’”

So far, DIUx has only used DoD’s new acquisition authorities to procure prototypes — not production systems that are ready to be used in military settings or inserted into existing systems. But last year’s Defense bill also allowed the department to pursue follow-on production contracts.

Schmidt said DIUx plans to start exploring those authorities soon.

“It’s really exciting, because it means we can continue to use these OT authorities from cradle to grave and take these nontraditional companies, in a responsive process, all the way through experimentation and prototyping all the way through doing transactions,” she said. “So we’re excited about taking that next step once our companies get to that point — the ones that are successful anyway — and move forward into those production OTs.”

Greenwalt said that was precisely the intention of the bill’s drafters.

“No one else in the department of Defense figured that out,” he said. “Congress just created the authorities and we didn’t go off and tell you. But yes, there’s a reason Congress did that, because why stop at prototyping? Then you lose access to these companies. Why would any company want to go bid for a prototype and then be done? At some point, you have to actually go buy something.”

The $36 million DIUx has awarded thus far has gone to companies whose work is largely in the commercial sector — seeming to meet lawmakers’ intent of broadening DoD’s supplier base beyond traditional Defense firms.

But dollar-for-dollar, the overwhelming majority of the funds went to companies who had previously won tens of millions of dollars through more traditional FAR-based procurements. Several of the prototype projects were awarded to small firms with no track record of Defense business, but almost all of those awards were for less than $1 million each.

Blum said DIUx’s successes shouldn’t suggest to federal acquisition leaders that OTAs and other workarounds to traditional processes should become the new normal, but agencies do need to become well-versed in how to use DIUx-like techniques.

Dan Ward, a retired Air Force acquisition official who now works for the MITRE Corporation, said the FAR already allows for most of the alternative acquisition approaches that innovation-minded officials are advocating, but they’re seldom used.

“Every time I think of something that I wish the FAR would let me do, I go and look at the actual text, and I actually find it,” he said. “I’ve come to the conclusion that ignorance of the FAR is a greater barrier to innovation than the FAR itself, and that’s because nobody actually reads the FAR. It’s long, it’s complicated, it’s bureaucratic, it’s intimidating, it’s dense. But it also contains a lot of explicit statements in favor of speed and agility and flexibility. It doesn’t just allow these things, but in many cases, it insists on them. People who are trying to insist on rigor and conformity and standardizing everything are violating the FAR, and we need to let them know that.”