DoD to provide more help, new thinking for buying commercial services

The Defense Contract Management Agency will expand the number of centers of excellence that are helping the military services buy commercial items.

These new organizations are part of how the Defense Department is trying to emphasize getting the best price possible for the most value in acquisitions.

Shay Assad, the director of Defense Pricing, said the goal of these CoEs is to change the way the military buys products and services, and to ensure they are getting prices that are right.

DCMA ran a prototype of this center of excellence concept last year. Based on that success, DoD wants to expand it to more offices across DoD.

“We put a pilot organization together in St. Petersburg [Fla.], just a small group of folks. We wanted to see could it be an effective tool in assisting contracting officers in making commercial item determinations and then ultimately trying to figure out want should I pay for it,” said Assad Monday at the Professional Services Council’s Acquisition Technology Conference in Falls Church, Va. “It’s been a home run. Now what the next step is we will branch out to five different centers. We are in the process of doing that. We will probably populate them with 10 or 15 people to begin with and then we will expand from there.”

Assad said he’s working with Air Force Lt. Gen. Wendy Masiello, the director of DCMA, to determine where those five other centers would be located. He said the centers will focus both on commercial services and commercial products.

The CoEs will be advisory in nature and not another layer of oversight to the acquisition process.

Responses in 72 hours

Assad said when a military service or agency submits a request for help to the center of excellence, it will return a decision on whether that item or service is commercial in nature, and whether the price is fair and reasonable within 72 hours — at least that’s DoD’s goal.

Assad said by creating the COEs, military services and agencies will more consistency buy commercial services and products. He said training 27,000 contracting officers is tough and over the years, inconsistency around what is a commercial item and how to buy it has grown across DoD causing a host of challenges, including huge variances in costs for similar products.

Now to that end, Assad said it’s not just up to the contracting officers to make better decisions on what’s commercial and if they are getting a good price from vendors. He said the program managers and program executive officers (PEOs) also need to be part of the discussion.

And that discussion must include an emerging concept at DoD called value-based pricing. Assad said it’s a premium that DoD is willing to pay for outstanding past performance or if a vendor can demonstrate a certain value that DoD describes in the solicitation.

“The reason we are bringing this center of excellence together is so that we specifically train people to think like this. It’s not the way the traditional government professional thinks. It’s ‘this is what it costs and I should pay a reasonable fee on that and that is what I should pay.’ It’s not a value-based pricing decision,” he said. “When we get into the world of commercial services, it enables us to be able to move into that world. Right now, there are a handful of people who can competently do this. And, oh by the way, there are not many folks in the industry side that can make the argument competently. That’s part of the issue here. There are very few companies that can come forward and cogently make that argument. So we both need to work together to say, ‘No, in certain procurements value-based pricing is completely reasonable, completely appropriate and it’s what we are doing to do.'”

Assad added that DoD has talked to the Senate and House armed services committees about this concept as way to ensure support.

He said the idea of value-based pricing isn’t just for services, as DoD already has used this concept for weapons systems.

New services instruction on the way

The idea of telling vendors is how much DoD is willing to pay for more for is part of the Pentagon’s broader effort to reform and improve how they buy services.

Assad said a new services instruction manual — similar to the DoD 5000 — is coming soon to help institutionalize all of these activities to improve how they buy services.

“What we are trying to do is really place more of an involvement on the program management side of this. We said these are your services. You need to be held accountable for measuring what you believe is the performance bases for which you want us to buy your particular service, you need to be more actively involved in the requirements side of this,” he said. “And frankly, I’m speaking a lot on the program management and knowledge-based services world, we spend a lot of money in that world and our PEOs and program managers don’t pay a lot of attention to it. They spend to the amount of money they have. We want to go where industry wants to go and that is we have a requirement and I want to spend only what I have to spend in order to satisfy my requirement. That doesn’t mean low price-technically acceptable. It means I only want to spend what I have to spend.”

Assad said the instruction is more focused on ensuring program managers are working with the contracting folks to define the requirements and then holding them both accountable for the outcomes rather than typical oversight.

Along with the new instruction and under the Better Buying Power 3.0 effort, DoD said the Defense Acquisition University will establish a community of practice for rapidly acquiring commercial off-the-shelf products and commercial services by October.

Additionally, under BBP 3.0, Assad’s office will “develop a draft legislative proposal to revise the definition of the term ‘commercial item’ to eliminate items and services merely offered for sale, lease, or license by September 2015.” And DCMA and Assad’s office develop plans to expand these CoEs along with updated guidance on commercial item determinations by September 2015.

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