Defense Department officials say the 2015 budget they will formally unveil next week won’t just be about reducing the size of the uniformed military. They also intend to propose “targeted” reductions to the civilian workforce and downsize the ranks of contractor employees.

All three military departments say they’re mapping out ways to make do with less contractor support than they currently have.

Service contracting, like other areas of personnel spending, makes up a giant collective bill for the Pentagon. DoD currently spends slightly more on services — when research and development contracts are included — than it does on ships, planes, tanks and other hardware, and that’s been true for more than 10 years, according to annual statistics curated by the Center for Strategic and International Studies.

It is too early to tell whether the services-to-products ratio would change in any meaningful way under DoD’s 2015 budget plan, and officials have not indicated by how much they would like to reduce their spending on services. But the Army, Air Force and Navy departments each say they are developing methodologies to prioritize their service contracts so that they buy only the services the military needs, and not necessarily all the services a local program manager might want.

“One of the things we need to look at is capability needs validation. Do I really need that? In the government, we’re really, very bad at that,” said Elliott Branch, the deputy assistant secretary of the Navy for acquisition. “The analogy I like to use is, if you’re an aviation commander, and you decide to borrow an aircraft from another squadron because you think yours should be bigger, you will go straight to Portsmouth Naval Prison. But if you’re a program manager with an extra dollar to spend on service contracting, and you have a willing contract officer, no one bats an eye. What we’re trying to do is acknowledge that we don’t currently understand whether our demands for service contracts are all currently supporting a valid military need. I can only get so many dollars out through competition or doing administration right. What we’ve concluded is that it’s got to be, in large part, appetite suppression for these contracts in an austere environment.”

Racking and stacking lists

Heidi Shyu, the assistant secretary of the Army for acquisition, logistics and technology, speaking alongside Branch at a Defense conference organized by Bloomberg Government, said her service also is taking a departmentwide look at service contract spending.

“We’re examining it across each portfolio, the knowledge management portfolio, the construction portfolio, the engineering portfolio, each piece of it,” she said. “We’re literally racking and stacking one-to-N lists. And then we have a portfolio manager who looks across all the commands who might all be buying maybe the same service to figure out the synergies we can garner by looking across the entire Army. We’re deep diving into all of that.”

Shyu said that deep dive is still in its early stages and hasn’t produced any action plans as of yet.

The Air Force is undergoing a similar exercise, prioritizing its service contracts across the enterprise. But at least for now, Lt. Gen. Charles Davis, the military deputy to the assistant Air Force secretary for acquisition, said his department’s focus will be on knowledge-based services.

“That’s because we’ve all been told to reduce our headquarters staffs 20 percent, and military, civilian and contractors all count against that bogey,” he said. “So we’re doing a very challenging process of figuring out how our service contracts would play into that at the major command level and above.”

Davis said the Air Force also is hoping for improved central oversight and management of all of its service contracts as a result of its recent decision to use the General Services Administration’s OASIS contract vehicle to buy most of its professional services.

“Whether it’s OASIS or other multiple-award [indefinite-delivery, indefinite- quantity] contracts, if we can make use of those almost mandatory or at least highly-recommended, we hope we can reduce the cost of the things we buy in every command in the Air Force,” Davis said. “That’s going to be something we continue to focus on in terms of how we get a better deal for services.”

GSA earlier this week made the first set of awards under OASIS to more than 100 small businesses.

No widespread use of LPTA

Military acquisition officials also say they have been making a concerted effort to design their service procurements in such a way that industry clearly understands what the government is asking for.

They also pushed back against a frequent industry complaint that DoD is engaged in a “race to the bottom” by awarding contracts on the basis of the “lowest-price technically acceptable” offer, when a best-value competition would be more appropriate.

“We’re not seeing a huge employment of LPTA, at least at my level,” said Branch, whose office oversees all Navy and Marine Corps service contracts of $100 million or more. “We did have a very large and visible procurement where we did do that, our Next Generation Enterprise Network (NGEN). But [Sean Stackley, the assistant secretary of the Navy for research, development and acquisition], dragged the program management community through a knothole to ensure himself that they had a very, very clear idea of what ‘technically acceptable’ meant before that acquisition strategy went forward. That message has gotten through to the rest of the program management community. If you’re going to use that particular technique, you will be able to define for the senior leadership exactly what ‘technically acceptable’ means.”

The Air Force’s Davis said his service is committed to doing a better job of giving vendors the information they need to decide whether or not to spend their scarce bid and proposal dollars to pursue a procurement.

“We’re trying to be very, very specific about what we intend to buy, and very, very specific about how we’re going to be do a source selection, including what value we put on individual requirements and objectives,” he said. “It’s OK in some cases if some companies don’t bid. In fact, some businesses should not be bidding on things that they’re bidding on right now, because the first thing they do when they win is subcontract a lot of things out. So the prime contractor doesn’t have much of a vested interest in the work. We have a whole lot of issues with subcontractor management across all of our programs. In this challenging environment, we want to see the right companies come forward for the work we want to do. But if we end up doing a sole-source contract because we were explicit enough on the requirements that there’s only one company that wants to do the work, that’s OK to me.”

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