The Under Secretary of Defense for Acquisition, Technology and Logistics, Frank Kendall, has earned a somewhat fearsome reputation in the halls of the Pentagon as a consequence of his demands for information. The phrase “In God we trust; all others must bring data,” is emblazoned on the entry door to his office.
The data is now in and the conclusion is clear: 2009’s Better Buying Power (BBP), this Administration’s signature effort at reforming defense acquisition, is a bust. As the name clearly states, BBP was supposed to enable the Pentagon, in the words of Kendall’s predecessor, Dr. Ashton Carter, to “do more with less” by bending the ever-rising cost curve for defense goods and services. BBP sought to achieve this objective with initiatives in seven major areas including improving the tradecraft and professionalism of the acquisition workforce and unproductive processes and bureaucracy. The primary means for reducing costs were by mandating affordability as a requirement, incentivizing productivity particularly through the increased use of fixed price contracts and increasing competition for contracts.
In their latest analysis of the Department of Defense’s (DoD) contract spending from 2002 to 2012, the good folks in the Center for Strategic and International Studies’ (CSIS) National Security Program on Industry and Resources, under the leadership of Mr. David Berteau, clearly demonstrate that BPP has failed with respect to its two key reforms: increasing competition and increasing the use of fixed price contracts. On increasing competition, the study concludes that “Across all of DoD, the share of contract obligations awarded without competition has risen steadily since 2005, from 36 percent to a new high of 42 percent in 2012. This has occurred despite specific guidance, both from OMB and from within DoD, calling for a focus on increasing competition in contracting.” If contracts with only a single bidder are included, 50 percent of all DoD contracts in 2012 were non-competitive; approximately two-thirds of DoD contracts in 2012 were awarded based on two or fewer competitors. In addition, the study shows that for all its efforts to open up DoD contracting to small companies, their share of overall contract dollars has remained essentially unchanged through 2012.
On the use of fixed price contracts, the truth is that they always constituted the majority (60 percent or better) of DoD contracts. Moreover, according to the CSIS study, the use of fixed price contracts has stayed relatively constant between 2000 and 2012.
“In the 2000–2012 period, as a share of overall defense, both fixed price (60 percent in 2000, 68 percent in 2012) and cost reimbursement (23 percent in 2009, 28 percent in 2012) have seen significant increases. . . . the research team is confident that the majority of the rise in both fixed price and cost reimbursement contract obligations between 2009 and 2010 is the result of better data labeling, rather than any change in contracting practices.”
In fairness to the Pentagon’s reform efforts, the study does note that the use of fixed price contracts in R&D has tripled since 2007 to 21 percent. But since R&D spending is less than 20 percent of total contract spending on goods and services, any cost savings would be lost in the noise.
Although the CSIS study does not address the subject, another failing experiment that is part of BBP is the increased use of the standard called lowest price, technically acceptable (LPTA) in contract awards. The over/misuse of LPTA became so bad that in his 2013 revision of BPP, called BPP 2.0, Mr. Kendall had to warn his workforce to also define technically acceptable so as to ensure needed quality. This is hardly surprising since in a recent market survey by two business research firms only one-third of government contracting officials who responded claimed a high level of familiarity with LPTA processes and procedures. Nevertheless, more than two-thirds of those surveyed said they were likely to release a request for proposal based on LPTA in FY 2014. This means that up to half of the government officials who plan to let a contract based on LPTA really don’t have a good grasp of this approach. So much for improving workforce training.
The data allows for only one conclusion: after nearly five years, BPP has not increased competition significantly, expanded the use of fixed price contracts noticeably, produced a better trained acquisition workforce or, most important, reduced defense costs appreciably. To add to this reform debacle, last year then-Deputy Secretary of Defense Carter cancelled the Defense Acquisition Instruction 5000.02, replacing it with a new instruction that incorporates failed BBP policies. When the data comes in, I predict that this change will be viewed as a mistake.
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