DoD targets service contracts, small procurements to boost competition rate

The Defense Department is trying to reverse a trend that has seen the percentage of contract dollars it awarded through competitive procurements slide for the past five years.

DoD officials issued several directives in August to turn around these numbers, and the Pentagon’s big-ticket weapons systems are not the primary focus.

Rather, DoD sees its best opportunities for improving the competition rate in service contracts, and more generally, in smaller-dollar procurements. DoD’s acquisition leadership often emphasizes that competition is the single best thing DoD can do to get better pricing and performance.

Dick Ginman, the director of defense procurement and acquisition policy, told reporters Sept. 5 that while there are definitely some cases in which major weapons buys end up going to a single supplier, those decisions are subject to layer-upon-layer of oversight at the highest levels of the acquisition command chain. He said the policy directives DoD outlined last month mostly are aimed at noncompetitive contracts that have escaped a high degree of supervision so far.

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“What we’re looking for is can we get to the group of people where we’re really going to have an impact, particularly at the level where it doesn’t get the kind of scrutiny that a procurement would get when it comes inside [the Pentagon],” Ginman said. “When it gets to the level of [undersecretary of Defense for acquisition, technology and logistics] Frank Kendall or the service acquisition executives, it gets a lot of scrutiny, it gets a lot of looks. We’re really trying to get to the ones that are significantly below that and find out how to do a better job.”

Biggest area for improvement

Service contracts are a particular focus area, in part because the department admittedly is less-well-versed in managing services in general than it is in handling product procurements, and also because the value of any individual service buy is usually small in comparison to major defense acquisition program.

Ginman said a preliminary look at the department’s competition data shows service contracting represents DoD’s biggest area for potential improvement.

“About a third to a fourth of our dollars that are not being competed are probably in products, and somewhere between two-thirds and three-fourths of what’s not being competed is in services. So the big opportunity is in services,” he said. “We have had, for an extended period of time, a very strong focus on product.”

DoD has been trying to improve its service contracting acumen since 2010, when it named service acquisition as a focus area in its ongoing Better Buying Power campaign. Ginman’s office now has review authority for any service procurement of $1 billion or more.

Additionally, DoD currently is working on a services-centric update to its main set of internal acquisition rules: a rewrite of the appendix to DoD’s bible of acquisition procedures — DoD instruction 5000.02 — dealing specifically with service contracting is currently in the final stages of an internal review process. Some of the objectives include getting a better idea of which DoD components might serve as departmentwide models for cost-effective service acquisition and which ones are finding ways to introduce meaningful competition into their procurements.

“It sets up a structure of experts within functional domains of service contracting, it sets up a structure for senior service managers in all of the military departments and agencies, and it’s designed to start to take a really hard look at where we spend our money,” Ginman said. “Not only spend from a competition perspective, but how we’re doing with small businesses, how we write our requirements and whether we can do a better job. One of the things we keep finding is that in any area we go look at all those areas is that there’s a wide variance. Some people are doing it competitively, some are not. There are generally good reasons, but when we find somebody with a better idea, we want to know how we move it over and do a better job with this stuff.”

Advice more than edicts

The measures Kendall approved last month to improve competition consisted mostly of advice and best practices to the acquisition community with only a handful of new straightforward directives.

For example, before a contracting officer issues a sole-source procurement, he or she will first have to issue a public notice asking for potential alternatives that meet the same need, and then publish the results in the “justification and approval” notice that’s already legally required to go along with a noncompetitive buy.

The Pentagon also wants to make sure its contracting offices aren’t turning to one source over and over again without a good reason. Those J&A memos already require contracting officers to explain how they’ll find ways to introduce competition for the product or service they’re buying in the next go-round. The Kendall memo tries to make sure that they follow through on those plans.

“So when you fast forward three or four years from the last J&A and you want to go do a new one, when you pull the last J&A out and it says, ‘I was going to do A, B, and C,’ if you didn’t do A, B, and C at all, we’re going to say, ‘OK, you used to have the authority to sign this at your level, but now it needs to go one level higher,'” Ginman said. “That way it gets increased attention at a higher level and we get people to pay attention. I’d like to tell you that of the 29,000 contracting officers I have in the workforce that all of them are absolutely superb and excellent. Some are better than others. This is an attempt to try to instill discipline and improve how we’re doing this.”

Ginman said there are plenty of situations in which the Defense Department already has locked itself into sole-source situations. Some of those were conscious decisions, like the Air Force’s decision to buy its new refueling tanker from a single company after a competitive bidding process. Others have to do with sub- optimal acquisition planning which wound up leaving a single contractor with all of data rights to a system that could otherwise be competed in future rounds.

In any case, the Pentagon wants its program offices to look for ways to introduce competition into situations where direct head-to-head competition isn’t always possible.

“If I’m in a sole-source now, what would I need to do to get myself out of that sole-source? Just starting to go to do those kinds of things frequently changes the behavior of the contractor who is sole source,” Ginman said. “If they think they have an absolute lock and their position is never going to be threatened, it’s different than if they think there’s something else coming down the pike. For example, can I break a product into components? I don’t have to be able to compete the entire end product if I can break it apart and take it out of a situation where the entire thing is currently sole-source.”

Drill down into the numbers

In 2010, the Pentagon started setting its own annual competition goals with the objective of pushing its competition rate upward by a percentage point or two. More recently, it’s been publishing quarterly competition goals for every major component of the Defense Department and how those components have performed against them.

While the department’s overall results have gone down instead of up, the results from the individual military services and defense agencies are all over the map.

About 43 percent of the Air Force’s dollars went toward competitive bids in the most recent quarter, compared to 63 percent for the Army and 99.5 percent for U.S. Transportation Command. Those very high-level figures, however, aren’t very useful metrics for comparison, since the Army and Air Force buy very different things, and the purchase of a single sole-source aircraft carrier could easily skew the Navy’s competition numbers by 20 percentage points in any given year.

So Ginman said DoD plans to drill further down into the numbers in order to find different contracting organizations that are making essentially the same purchases, find procedural differences, and promulgate the processes that are yielding more competition.

“It’s tough just to look at Army, Navy, Air Force. They’re in different marketplaces looking at different things in different ways, so you absolutely have to get down to the eaches, which is why we’re trying to go into the functional domain experts,” he said. “If I go into facility-related services, can I look at the lower echelons where people are literally trying to buy the same things, and is there a variance? That’s where we’re trying to go.”

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