DOD takes steps to cut contract costs

House urges military to reduce spending on services through better oversight

Defense Department procurement officials have launched a review to find ways for the military to save billions in annual spending on contract services. Shay Assad, DOD’s director of procurement policy, said he has set a goal of saving 5 percent annually, or $5 billion to $8 billion, in the next two to three years.

“If we can save 5 percent…we can buy 45 F-22s every year; we can buy two DD(X) [destroyers] every year; we can buy the entire complement of [Mine Resistant Ambush Protected] vehicles for the Marines,” he said in an Aug. 27 interview.

Assad said DOD spends $140 billion to $150 billion a year on contract services. While Assad looks internally for savings, House lawmakers have passed a provision that anticipates savings resulting from increased oversight of DOD services contracts. The House version of the fiscal 2008 Defense appropriations bill would impose a 5 percent reduction of contracted services departmentwide in anticipation of savings from improved management and oversight. The House passed the bill Aug. 5.

“The committee contends that DOD is not providing sufficient management oversight to improve the acquisition and management of contractor services,” House lawmakers wrote in their committee report.

Assad said he is unsure how increased oversight could lead to savings. “It’s not clear to me how you go about that.”

Senators are expected to debate the Defense spending bill in September.
Alan Chvotkin, counsel and senior vice president of the Professional Services Council, said saving 5 percent on services is a realistic goal. However, he added that DOD should not focus on services alone when making decisions on which areas to save money. He said the Pentagon also should examine weapons systems, the federal workforce, and operation and maintenance expenses for potential savings.

Assad said DOD will complete work on the necessary metrics for measuring savings in the coming months. Meanwhile, the spending review targets several areas, he said.

One area involves contract language. Officials hope to save money by being more precise in writing contracts, Assad said. Greater specificity in performance work statements would help contractors complete their tasks more efficiently and reduce the potential for waste or error, he said.

In addition, DOD wants to foster greater competition — and savings — by awarding fewer large, multiyear contracts to single companies.

“For the major services acquisitions over $1 billion, we’re…out of the business of awarding this to one organization,” Assad said. Instead, DOD expects in the future to award shorter-term contracts that it would recompete frequently.

With shorter contracts, DOD would be in a better position to measure contractor progress and sever ties with underperforming companies, Assad said.

“We want to have the ability to keep the competitive pressure on our contractor base,” he said. “That’s when we get the best results.”

In their search for savings, procurement officials also are examining interagency contracts, which account for $20 billion to $25 billion in annual spending. Assad said DOD officials are talking to officials at other agencies, including the General Services Administration and the Interior Department, to determine which agency DOD could contract with for specific services.

“We really don’t want to have GSA be a provider of every kind of service that’s out there,” Assad said. “If they are the most efficient and effective folks to provide IT support services, then we want to focus on that with them and get the rest of the department to say, ‘We want you all buying your IT support services from GSA,’ for example.”

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