The Defense Department is taking its efficiency initiative to its contractors.
About a month after DoD Deputy Secretary William Lynn announced the department’s pledge to tighten its own belt, Undersecretary of Defense for Acquisition, Technology and Logistics Ashton Carter says it will boost the productivity and efficiency of the companies that contract with DoD for goods and services.
“We’re moving on to another phase which is reintroducing affordability to the programs we have concluded we do need,” says Carter.
Of the department’s annual $700 billion budget, about $400 billion is contracted out for services and weapons systems, says Carter.
In a press conference held at the Pentagon Monday, Carter says DoD will continue its efficiency initiative by doing more without more.
“The department hopes to increase warfighting capabilities by 2 to 3 percent without commensurate budget increases,” says Carter.
The program rests on the idea that technology increases can help grow productivity and result in superior results without costing more. Carter says this concept is built into the larger economy, but is missing from the defense industry. Instead, defense project costs tend to mirror technological advances, a phenomenon that, according to Carter, isn’t always necessary.
The government will offer incentives such as a “preferred supplier program” to contractors who improve their efficiency. Carter likened the idea to a frequent buyer card; the more ways a company boosts their productivity, the more contracts they are likely to win in the future.
Carter also hopes to bring small businesses into the defense industry. Small businesses will increase competition and expose larger firms to practices that could help them become more efficient because, Carter says, smaller firms tend to be leaner and have less overhead.
The program also will look at ways DoD can encourage efficiency. According to Carter, productivity often suffers when the military changes its mind halfway through the production process when goods are scrapped and plans are changed.
Carter also wants to change the way DoD budgets for projects from a “will-cost” to a “should-cost” approach. Will-cost estimates forecast what a project will cost, assuming the company maintains its standard operating procedure. Carter says DoD and contractors need to step back and evaluate what a project should cost, asking, “Does it really need to be that expensive?”
In the coming weeks, Carter says he will work with agency heads, independent forecasters and contractors to identify specific targets. He will then issue a concrete set of guidelines.
Carter says he wants to use the “rule of reason…in selecting the right tradecraft to reflect the reality of the situation at hand and provide the right incentives to the performers of the work to reduce costs, and to the government to contain its appetite and not change its mind.”
The Professional Services Council, an industry association, expressed some concerns after meeting with Carter on the forthcoming memo.
“We share the goals that Undersecretary of Defense Carter has identified for the department and while many of the recommended guidelines-such as increasing competition and choosing the right kind of contract-are laudable, PSC is concerned about how the department proposes to implement them,” Chvotkin says in a release.
“Services cover a broad span of activities and no one size fits all. Yet some of his initial recommendations may unnecessarily limit flexibility. For example, the department is right to focus on choosing the right contract vehicle, but why take a tool out of the toolbox by eliminating time and material contracts?”
PSC plans to present recommendations to DoD in a future meeting between department officials and member companies, as requested by Carter.