DOD proposes new regulations

Senior Defense Department officials proposed this month new rules for modular contracting that would encourage agencies to consider problems they may encounter when building large information systems piece by piece according to a memo sent to the Federal Acquisition Regulation Council.

Emmett Paige Jr. Defense assistant secretary for command control communications and intelligence and Colleen Preston Defense deputy undersecretary for acquisition reform suggested the government set rules that would help agencies guard against the possibility that systems built piecemeal by different contractors might not work together when integrated. Their suggested language would define what is meant by "modular" system acquisition and they offer examples of ways to structure contracts and manage development risks.

The theory behind the new acquisition strategy endorsed almost a year ago in the Clinger-Cohen Act is to contain cost and schedule overruns by structuring acquisitions in small increments. Each piece of a system built this way would provide an agency with new capabilities it could use even if follow-on segments were never purchased.

But federal policy-makers are still wrestling with the question of what rules are needed to govern modular contracting. The topic is controversial partly because no federal precedents exist for the practice and partly because it could disrupt traditional business relationships between agencies and vendors.

Even those involved with trying to set rules have argued about what type of guidance agencies need. Analysts who wrote the Paige-Preston memo noted in the introduction that members of the team could not agree on how much detail the rules should provide.

"This type of discretionary material is not usually set forth in the [FAR]" they wrote. Although it might be more appropriate to include such information in a "best practices" guide they added "We believe that it is important that these concepts be raised."

Vendors especially systems integrators want detailed regulations.

They contend that the concept of building information systems in discrete modules needs to be clearly defined and that despite the statutory preference for this approach the rules should make clear that this does not mean every system should be acquired this way.

"They know the complexities of these huge systems and some of the contractual exposures that they have " said Jim Berish federal procurement policy manager with Hewlett-Packard Co. "Any of these guys that have been through some of these humongous programs probably have a lot of horror stories on their minds."

The DOD proposal refers to these issues. The suggested language includes examples of situations where agencies might want to use only one contractor and suggests contracting techniques to consider depending on the complexity of the system the agency is buying.

"It recognized that there isn't a one-stop shopping list for contracting " said Ella Schiralli director of government relations with the Electronic Industries Association.

The Clinger-Cohen law vaguely directs agencies to buy large systems incrementally as much as possible because smaller acquisitions would be easier to manage and users would not become wedded to one technological approach. "We were deliberately vague in some cases because we wanted the concepts to evolve " said Paul Brubaker a former aide to outgoing Sen. William Cohen (R-Maine) who wrote the law. "It's not a one-size-fits-all rule."

Edward Loeb chairman of the Civilian Agency Acquisition Council said the FAR Council expects to publish a modular-contracting rule this month. "It may require further discussion " he said.

Steven Kelman administrator of the Office of Federal Procurement Policy said it would be "premature" to issue any modular-contracting rules before policy-makers consult commercial companies about their buying practices and "interact more with the [information technology] community."

Theresa Squillacote director of legislative affairs under Preston said she expects the DOD comments to be considered before any rule is made final.

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