The Pentagon has made some progress toward driving better business deals with industry, but has a “long way to go” in the effort to buy the products, and the military needs at prices that are affordable, a top DoD acquisition official said Friday.
It’s been a year and a half since DoD first published its acquisition principles known as “Better Buying Power.” Then-undersecretary of Defense Ashton Carter laid out 23 separate initiatives designed to drive down costs, promote competition and improve the acquisition workforce. One key tenet in the initiative is called “should cost” management — the idea that DoD officials should manage programs in accordance with what they should cost, not what history has suggested they will cost.
Instilling the idea of should-cost has been the biggest struggle so far, said Shay Assad, the DoD’s director of defense pricing.
“We’re still stuck on ‘does cost,’ and that’s a problem,” he told a Coalition for Government Procurement conference Friday. “It’s not just within the contracting officer community, it’s the program management community, the auditors’ community and the (Defense Contract Management Agency) price analyst community. We’ve got to get people’s mindsets into what things should cost. Now, once we’ve established what they should cost, the next question is whether or not industry can get there. Is there a reasonable path from what things presently do cost to what they should cost?”
Assad said that’s where another part of the better buying power initiative comes in: using profit as a motivator to give vendors more incentive to help bring program costs down. He said if done right, it’s a win-win for both the government and good companies.
“Some people have misinterpreted what better buying power is all about. There are people that want to believe this is an attack on profitability, and that’s not the case at all,” he said. “What we’re telling our contracting officers is that they need to use profitability as means to incentivize industry to reduce their costs. And there should be a discrimination between companies who are focused on reducing their costs and companies who are not.”
Assad said contracting officers and program managers on the government side are also being told to do all they can to remove barriers that prevent companies from bringing their costs down.
He said the Pentagon also is trying to make it easier for vendors to make informed decisions about where to invest their limited bid and proposal dollars. Currently, he said, too many competitions leave vendors confused about precisely what capabilities are most important to the government in any given procurement.
“And so you’re likely to see competitions where we say if you meet these three or four requirements, [your proposal is acceptable]. Everything else, we’re OK with it, but these are the most important things to us,” he said. “Vendors need to understand what’s going to discriminate between them and another competitor. Oftentimes we leave that in a nebulous environment where contractors truly don’t understand, how do I win this thing? They don’t know what technical aspects we’re going to value the most.”
And Assad also pushed back against what he said is a widely-circulating myth: that DoD is pushing its vendors to use low-price, technically acceptable (LPTA) procurements even in situations where it’s not appropriate. He said acquisition policymakers are telling contracting officers that they must to pay attention to price, but that doesn’t mean they shouldn’t pay attention to quality.
“We’re telling our contracting officers that you need to understand what your requirement is, and if in fact you don’t see value in providing a level of service above a certain amount, then price should play a more important factor,” he said. “It shouldn’t surprise you that the highest-value performer from a technical point of view is usually the best cost also. Those things do play hand-in-hand more often than not. We’ve got this mantra out there spreading around that says that somehow if you care about price, you don’t care about value. It’s just not true, and we’re spending a lot of time explaining that to Congress. Every one of us, with our own money, certainly care about what we pay for. But I can tell you there’s absolutely no policy from DoD that says we want you to start using low-price, technically acceptable approaches.”
DoD also is exploring ways to make more use of the General Services Administration’s schedules to buy services, Assad said. The Pentagon has asked GSA to set up a pilot program that would allow it to buy services on a cost-reimbursable basis in situations where firm fixed price terms aren’t reasonable.
“Frankly, it’s a user-friendly environment when we can use the schedules,” he said. “We have a number of contracting officers who would prefer to use the schedules if they could, so we’re going to look to expand that a little bit.”