As the Defense Health Agency nears its one-year anniversary, its officials say they’re serious about finding the savings they promised through the reorganization of DoD’s healthcare activities.

A more rigorous approach to strategic sourcing is one way the agency hopes to find those savings. DHA is conducting market research right now for a new 10-year, $20 billion indefinite-delivery indefinite-quantity contract that it plans to finalize by March 2016.

The agency will make the contract vehicle available to the entire government, but for DHA’s own purchases, its use will be mostly mandatory.

When the Defense Health Agency reached its initial operating capability last October, its backers predicted the move would save DoD $3.5 billion over the next five years. It consolidated some of the management structures of the military health system, the TRICARE management activity and the military services’ own medical operations.

Mandatory for the military health system

The sprawling military healthcare system has had its own IDIQ contracts before, but individual program offices could choose whether or not to use them. Col. Scott Svabek, DHA’s acting procurement director, doesn’t like how that’s panned out.

“In 2013, the military health system had 337 task orders for professional services, not against one IDIQ, not two, but 39 IDIQs. And I would argue that within one program office there were probably six task orders for similar skill sets on six different contracts all paying six different labor rates,” Svabek told an industry audience Thursday at AFCEA Northern Virginia’s annual Joint Warfighter IT Day.

The new contract is officially a follow-on to a IT support contract vehicle called SIDDOMS, which expires at the end of 2015. DHA held in late July an industry day to gather input on a draft request for proposals it issued a few days earlier. The event attracted 406 vendors. Now, it’s working on preparing its own responses to industry’s questions about the contract strategy.

But in a somewhat unusual approach to a large government IDIQ contract, Svabek said it’s entirely possible that DHA will qualify its first round of vendors without going through a formal competitive process, and the agency doesn’t plan to place a ceiling on the number of companies that can win spots on the contract.

DHA is planning a process of two separate “gates” to pick vendors for the new vehicle. In the first round, it will propose a set of prices and other terms to which it hopes contractors agree.

“If you meet these terms and conditions, you’ve got good past performance, you don’t even have to submit a proposal. You’re in,” he said. “It’s jacks or better.”

Svabek said if that first gate qualifies enough companies for the new contract, the agency won’t even move forward to the second gate — a competitive source selection. But he says that streamlined process will only happen if DHA qualifies enough companies through the first gate so that it can conduct a reasonable amount of competition at the task order level.

Svabek said, as of now, he expects at least 300 firms to throw their hats in, and wants industry to help DHA define reasonable terms and conditions for the contract.

“It’s a cool concept, because I’m not spending nine months doing a formal source selection when I’ve already got companies who have great past performance in the federal space,” he said. “Even if you don’t have federal experience, but you’ve got good commercial past performance and you’re [compliant with DoD cost accounting standards], then you’re basically in the pool. And if I have enough service-disabled veteran owned businesses, women-owned, HUBzone, 8as, any of the other socioeconomic programs, I plan to meet my goals out of that contract at the task order level.”

Once the new contract is firmly in place, DHA says there won’t be much wiggle room for program offices within the military health system to buy the services on the contract from another vehicle.

“It’s basically going to be a mandatory source. I won’t allow my program offices to go off the reservation without getting a waiver,” Svabek said. “Tell my why this vendor pool doesn’t meet your requirements. There might be some, and we’re creating a waiver process, but waiver request can’t be because the company you want is not on this vehicle. We’re not hiring a company, we’re buying a service.”

Fast-tracking vendors, then replacing good with great

There are plenty of things DHA hasn’t yet figured out about how the contract will work, especially given its 10-year anticipated length. For example, it’s looking for ways to keep the contract populated with new entrants into the technology market — and to weed out firms who originally won spots, but don’t actually place many bids for task orders.

“Once you’ve got your jacks or better, if you’re just holding your cards and making minimum antes, if we’ve got hungry companies out there, we need a way to get average companies off and excellent ones on, both large and small,” Svabek said. “Some people might go from being a very small business to a medium one in the span of one large task order. So when do we want to refresh those small businesses? We’re going to look at how we do the recertification for those companies.”

Svabek said the contract will include high goals for subcontracting to smaller and disadvantaged firms. They are likely to be between 40 and 42 percent. Three percent of the contract value will be targeted toward the AbilityOne program, the federal government’s employment program for people with disabilities.

Other elements of DoD have chosen recently to use other agencies’ preexisting IDIQs for their strategic sourcing programs. The Air Force, for example, opted earlier this year to use GSA’s OASIS as its preferred vehicle for many of its professional services. But Svabek said DHA decided it did not want to outsource its strategic sourcing program.

“That’s not strategic sourcing, that’s task-order ordering. The other thing is, I can’t control it. I can’t control my small business goals, because if I use it I’m going to pay a fee for it,” he said. “The Army Corps of Engineers charges me 9 percent to write a contract. The Interior Department used to be 1.5 percent, but it just went up to 5 percent. So all that overhead has to come out of the tax dollar, when it’s free if the customer would just plan.”

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