Under Secretary of Defense for AT&L, Mr. Frank Kendall released the long-awaited revision to the defense department’s signature acquisition reform memorandum, Better Buying Power (BBP): “Implementation Directive for Better Buying Power 2.0 – Achieving Greater Efficiency and Productivity in Defense Spending.” One aspect is very positive, but much of it represents the same old complaints by the Pentagon.
The positive aspect is a general admonition to the acquisition workforce:
“The first responsibility of the acquisition workforce is to think. We need to be true professionals who apply our education, training, and experience through analysis and creative, informed thought to address our daily decisions. Our workforce should be encouraged by leaders to think and not to automatically default to a perceived “school solution” just because it is expected to be approved more easily. BBP 2.0, like BBP 1.0, is not rigid dogma – it is guidance subject to professional judgment.”
This is an important statement. It is a tacit admission of what everyone knew: the acquisition workforce tended to behave in a rigid, by the book fashion. This behavior limits innovation, slows down the process and increases cost. The acquisition workforce needs to use its judgment rather than mechanistically applying rules, regulations and procedures.
The major negative feature of BBP 2.0 is its failure to do anything substantive about the burdens the acquisition system puts on private industry. If anything, it takes a step backwards. For example, the new memo deleted the directive in BBP 1.0 to eliminate requirements imposed on industry where costs outweigh benefits. The General Guidance section in the new memo says: “The Department still needs to reduce unnecessary and low-value added processes and document requirements that are a significant overhead burden on the Department’s leadership.” Apparently, DoD is no longer interested in reducing the acquisition regulations, policy, and costs it imposes on industry in the acquisition process.
The cost of acquisition in DoD’s administrative overhead is estimated to be 20% of the price of everything the department buys, over $80 billion per year. This figure does not include the tremendous costs DoD incurs internally and not captured in prices for goods and services. By eliminating this requirement to reduce requirements that add unnecessary costs, BBP 2.0 closes off the line of action with the highest probability of actually achieving significant savings.
In addition, it appears that BBP 2.0 continues DoD’s “war” on private sector profits. The memo includes a section titled “Incentivize Productivity and Innovation in Industry and Government”, and a sub-element “Align profitability more tightly with Department goals”. In the General Guidance given for this section in the memo, it says “Profit is the key lever in motivating contractors to perform in alignment with DoD goals.” And, “Current profit levels in the aggregate are reasonable and sustainable.” It goes on to say how DoD plans to revise its weighted guidelines for profit. However, these guidelines actually refer to fees, not profit. There is a big difference between profit and fee – the first and most obvious is taxes. Profit is what is left over after many unavoidable expenses for doing business. Their misunderstanding remains a big problem and they should correct this by rephrasing these guidelines, not to mention making them more reasonable.
Poor margins are one reason for limiting the pool of potential suppliers to the government. Both versions of BBP have placed tremendous emphasis on competition to reduce costs. However, competition rates have actually declined in the last five years. Perhaps, the tremendous pressure on margins is a contributing factor to declining rates of competition – fewer companies willing to deal with a cheap, difficult, unreliable, cantankerous customer.
In general, it is remarkable that BBP 2.0 continues to be focused on things others can do to reduce costs, rather than to look internally to understand how DoD is contributing to costs. Probably the most productive path to efficiency is in reorganizing the defense department itself. The potential is likely far more than currently envisioned budget cuts, which means that DoD could achieve these budget reductions without sacrificing modernization, manpower, or national strategy.
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