PATHS TO SUCCESS
Director of the Defense Procurement and Acquisition Policy. “If, in fact, we can incentivize the contractor to pro- vide us products that cost us less, and he makes more doing it, that’s okay … we’re all for a healthy industrial base.”
• Using proper contract type for devel- opment and procurement. “There were too many examples of ‘I’m using a cost-reimbursable contract on this type of program because that’s what has worked on similar types of programs over the years,’ as opposed to ‘Is this the right contract type?’” said Crean. The task force learned that contract type was an important way of aligning incentives for the government and the contractor.
The resulting directive was to increase the use of fixed-price-incentive, firm- target contracts where appropriate, using a 50/50 share line and a 120 percent ceiling as a point of departure. Crean stressed the importance of the word “appropriate” in the directive.
“The one thing he [Carter] is trying to avoid is the perception of a mandate. What he’s asking is for people to justify … their determination for using a par- ticular type of contract,” Crean said.
• Sharing the benefits of cash flow. Through their research and case anal- ysis, the task force learned that the government is an exceptionally reliable customer in terms of financing—paying upfront and regularly, sometimes before products are delivered. DOD finances most industry investment needed to prepare products for the defense mar- ket, enabling the Department to offer a high cash flow return on invested capital. The task force concluded that DOD therefore should use innovative contract financing methods to incen- tivize vendors with the time value of money in exchange for lower prices.
94 Army AL&T Magazine
The resulting directive was to adjust prog- ress payments to reward performance.
• Rewarding excellent suppliers. “The basis of this [initiative] was, how can we recognize that we’ve got some con- tractors out there that are doing great jobs?” said Crean. The task force concentrated on the Navy’s Superior Supplier Incentive Program. All ben- efits from the program are post-award, so preference is not given to organiza- tions to win certain awards.
Carter directed that the Navy con- tinue to lead the pilot but immediately include the other services and DOD components, ultimately transitioning to a full DOD program.
“It gives stockholders, purchasers an opportunity to look at that and say, ‘Hey, there’s a likelihood that person’s going to be a repeat winner and have an opportu- nity to grow.’… to show industry what we care about—publicly,” said DAU President Katrina McFarland, who pre- viously played a key role in the Better Buying Power Initiatives under Carter.
• Protecting the technology base. After the task force learned that DOD reim- burses industry as an allowable cost more than $3 billion annually in inde- pendent research and development (IRAD), with no insight into how or where these funds go, Carter directed DOD to align the purpose of IRAD to actual practice. He directed that the Director of Defense Research and Engineering (DDR&E) engage with the largest of the performers of IRAD to collect data on how they have used these funds in recent years. With this information, Carter directed DDR&E to provide a plan for a pilot program, to improve the return on IRAD invest- ment for industry and government.
PROMOTING REAL COMPETITION Robert M. Griffin Jr., Assistant Com- mander for Acquisition, Naval Facilities Engineering Command, which leads DOD in competition, headed the Task Force on Promoting Real Competition.
“What was amazing to me was that we don’t get the level of competition you would think we would,” said Griffin.
“What was more disturbing was when we went out in a ‘competitive’ environ- ment, how often we only got one bid or one offer.”
Studies have consistently concluded that competition drives down prices, Griffin said. Research by the Institute for Defense Analyses (
https://www.ida.org) and others shows that the savings from true com- petition range from 5 to 25 percent, depending on what is being purchased.
Carter’s Sept. 14, 2010, memorandum, Better Buying Power: Guidance for Obtain- ing Greater Efficiency and Productivity in Defense Spending, calls on each agency’s competition advocate to develop a plan to improve, at a minimum, overall compe- tition by 2 percent per year (by moving from a sole-source environment to a com- petitive one); and effective competition by 10 percent per year (by reducing the number of single-offer competitions).
“We want to improve competition, the big number—all the stuff that historically was sole source under a J&A [justification and authority], plus all of the stuff that was ‘competitive’ but wasn’t effectively competitive because we only got one bid,” Griffin said. “By improving both, we’ll save money.
“Ultimately, PEOs [program executive officers] and PMs [program managers] want the right thing,” Griffin added. “If we make it easier for them to get
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