DOD renews acquisition reform by focusing on unearned fees

New contracting policies respond to longstanding contracting concerns

Defense Acquisition Transformation

Contractor performance awards and the role of lead systems integrators are near the top of the list of troublesome contracting issues that the Defense Department says it must get fixed. But the challenges DOD faces in reforming its billion-dollar contracting activities are familiar ones: the lack of clear financial metrics, the difficulty of maintaining a focus on reform, and the sheer size of the problem.

“This is just gigantic,” said Kenneth Krieg, undersecretary of defense for acquisitions, technology and logistics. Krieg spoke to reporters last week about DOD’s latest plans to reform defense contracting.

DOD plans to require officials at a more senior level to determine contract award fees. It wants to avoid paying for work that is deemed unsatisfactory. Officials will soon issue instructions for implementing the new policy, Krieg said.

The Government Accountability Office reported that DOD paid about $8 billion in award fees whether the fees were earned or not and has failed to appoint performance monitors in more than a third of the cases GAO recently reviewed.

Under new policies, awards and incentives will be linked to specific outcomes, such as cost, schedule and performance. “It’ll be a different combination based upon what the program is and what the needs are,” Krieg said.
DOD is also considering the idea of a creating a fixed-award fee pool for which various contractors could compete.

Replenishing its contracting workforce is another contracting challenge high on DOD’s reform agenda. DOD’s acquisition workforce is aging and replacements are needed, Krieg said. The civilian employees who comprise 85 percent of DOD’s 134,000 contracting professionals have an average age of 49. DOD needs a strategy to accelerate hiring, he said.

Collaborating early on contract requirements will be crucial to DOD’s success at acquisition reform, Krieg added. DOD hopes to improve that process by linking its warfighter, acquisition and resource communities through common databases, analytic methods and networked information sources, for example. 

To avoid an inherent conflict of interest, the 2007 defense authorization bill sought to limit the role of lead systems integrators in designing large defense systems programs. The Army’s Future Combat Systems, for example, is a lead systems integrator program. 

Krieg said the role of developing contract requirements should always be performed by government employees. But defining metrics for success is a function that lead systems integrators can perform, he said. DOD must balance the risks of empowering systems integrators with its need for integrators to coordinate large defense systems programs.

“It’s really a bit of a conundrum…we’re trying to learn as we go,” he said.

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