DoD aims for more consistent decisions on ‘commercial’ items

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For the Pentagon’s suppliers, the military services’ decisions about whether or not to classify their products as “commercial” can have a major impact on how an acquisition goes forward. And right now, many of those decisions don’t have much obvious rhyme nor reason when compared against each other.

The Defense Contract Management Agency wants to bring more predictability and consistency to the process by standing up a team of experts to work full-time on bridging the gap between commercial pricing and the byzantine world of military procurement.

As things stand now, the decision about whether to bestow the “commercial” designation on a given product is entirely within the discretion of the individual DoD contracting officer who’s buying it. That simple fact isn’t changing, but Lt. Gen. Wendy Masiello, DCMA’s director, said her agency is in the process of rebuilding a pricing expertise that’s atrophied over the years so that DCMA can at least perform a strong advisory role for the far-flung contracting offices that make the day-to-day decisions.

“With the decentralized process we have now for commercial item determinations, one contracting officer might make a decision for an item, and a different contracting officer might make a different determination,” said Masiello last week at the Air Force IT day sponsored by AFCEA’s Northern Virginia chapter. “We want to understand those reasons, and we want to provide a central place where when a commercial determination is made, we can hang it on a net somewhere and other contracting officers can look at what the decision was. I think that’s important for our industry partners, because they’re frustrated when they see different decisions being made from place to place.”

Experts to be central resource

DCMA is hiring and training a cadre of roughly 50 full-time commercial pricing experts who will be based at the agency’s offices in St. Petersburg, Florida. They won’t be able to make a final call on whether a given item meets DoD’s definition of “commercial,” but they will be a central resource contracting officers can turn to in the hope that the department will make more consistent and predictable decisions.

For individual acquisitions, the distinction is vital. If an item is deemed “commercial,” it can move through a speedier and more streamlined acquisition process which leapfrogs many of the hurdles which accompany a military-specific procurement, such as negotiations over fair overhead and labor rates. The rationale is that if the government is buying something that’s already being sold in the commercial marketplace, it’s pretty easy to document whether or not the price of the end product is reasonable.

But there are also gray areas that cause different contracting officers to arrive at different decisions, including a special category called “commercial- of-a-type” — something that’s pretty close to a commercial product — but that’s been changed in some way to meet Uncle Sam’s requirements.

“In the end, the goal for standing up this capability is to help facilitate a consistent thought process about what commercial pricing really is, where it fits, and how we handle the one-offs like commercial-of-a-type,” Masiello said. “How do we deal with those understandings in a consistent fashion?”

Masiello characterized the new commercial pricing capability as one of DCMA’s contributions to DoD’s Better Buying Power program — the overall effort to get more affordable products and services throughout the Pentagon.

In that vein, she said the agency also is building a stronger supplier management program in which it will take an increasing interest not just in how its large prime contractors are performing, but also how those big vendors are managing their subcontractors.

While DoD doesn’t have direct authority to manage those lower-tier suppliers, it does have a strong financial interest in how efficiently they’re performing, since an increasing share of prime contract dollars are now flowing through to subcontracts.

Additional metric for superior supplier program?

“That’s kind of a new environment for us, and for a while, no one had been paying attention to it,” she said. “It’s becoming increasingly important because of things like monitoring for counterfeit parts. But in a broader sense, we expect our primes to hold their subcontractors accountable for the contracts we put in place across the board. And interestingly, I’ve had a number of large defense contractors look at me and say, ‘That’s your job at DCMA.’ No, it’s not, but what they need to be aware of is that my staff is now oftentimes sitting in those subcontractors’ plants because they happen to be a prime contractor on another contract. So in those cases, I actually can watch how well you’re managing your suppliers. I have a visibility that our program offices don’t have as to how well the primes are managing their subcontractors.”

Masiello estimated 60 to 70 percent of overall DoD prime contract dollars now are being subcontracted to other firms, and as a result, those lower-level suppliers have an increasing impact on whether a product is delivered according to the price and schedule the prime vendor signed up for.

And the Defense Department is interested in identifying those prime contractors who regularly meet their obligations as part of its Superior Supplier program.

The Navy pioneered that effort, which aims to rank and reward vendors who consistently deliver above-average performance. At the Pentagon’s direction, The Air Force and Army are building their own programs, but so far, the single data source they’re drawing from to build their rankings is DoD’s Contractor Performance Assessment Reporting system (CPAR).

Masiello said DCMA is in a unique position to provide more data inputs into the program, since it oversees many, many contracts that span the entire department at a granular level of detail.

As an example, it’s often charged with the responsibility of ensuring that DoD’s vendors comply with existing regulations that require them to document and inspect the goods they’ve received from their suppliers via a document known as DD-250.

“I should be able to automatically determine whether or not we had an on-time delivery, because I can record what the anticipated delivery date is for an item,” she said. “So we are looking at our internal data systems to get them in sync with the contractual obligations and map them to the delivery information we already have in a very objective way. That can be a little scary, but I think sometimes some raw data and an understanding of what’s going on invites a really good intellectual conversation about what’s going on within a contract. Then we can talk about accountability, both on the government’s part and on the contractor’s part, to live up to what we signed up for in the contract. It’s an accountability opportunity on both sides.”

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