Law calls for DOD to clean up acquisition

Contracting ethics emerged as a prominent theme in the fiscal 2007 Defense Authorization bill as lawmakers sought ways to make the Defense Department more accountable for its spending and to give themselves greater oversight authority.

The reform measures address hotly debated ethical concerns, including the revolving door between government and industry, the uncertain role of contractors performing government functions, improper payments of contract performance bonuses and the use of fixed-price contracts for technology development.

What remains unclear, observers say, is whether the new provisions will add more confusion to an already cluttered rulebook or clarify how DOD and its industry partners should interact and lead to more consistent and transparent business practices.

The authorization bill, which lawmakers passed Sept. 29, requires DOD contractors to report annually to Congress on their employees who have had contracting responsibilities either as DOD employees or as members of the armed forces. The reporting requirement will be attached to any contract worth $10 million or more and will apply to employees who have held positions in the government as contract specialists, acquisition officers and program management staff or who have had similar jobs.

Army officials see the new provision as a reaction to recent high-profile contracting abuses, including the Boeing scandal involving Darleen Druyun, an Air Force contracting official who favored Boeing in contract awards in exchange for personal favors. Greater awareness of contractor employees’ personal histories would be helpful, but compiling such information will be difficult, said Gary Winkler, director of the Army’s Governance, Acquisition and Chief Knowledge Office.

Some industry leaders, however, say the measure is an example of excessive micromanagement that will create more problems by requiring information about thousands of people who change jobs frequently. “The level of detail required in this is unnecessary,” said Stan Soloway, president of the Professional Services Council, which represents companies that provide services to the federal government.

Congress went further in legislating ethics by addressing the improper awarding of contracting bonuses. The authorization bill directs DOD to have a federally funded research and development center (FFRDC) prepare new guidelines on awarding contract bonuses.

The Government Accountability Office reported recently that DOD has routinely paid incentive bonuses to contractors without holding them accountable for meeting contracting goals. DOD paid about $8 billion in award fees regardless of contractor performance in the cases GAO reviewed and failed to appoint performance monitors in more than a third of the cases.

But some industry leaders say FFRDCs, which include organizations such Mitretek Systems and Rand Corp., might not be the impartial third parties that Congress intended to make such determinations. They say the role of FFRDCs has shifted since they were chartered and that sometimes their work now overlaps with that performed by contractors.

“We don’t really see why the FFRDCs add anything to the process, except potential conflict of interest on their own side,” said Dan Heinemeier, president of the Government Electronics and Information Technology Association, which represents high-tech companies that do business with the government.

To hold down acquisition costs, Congress has directed DOD to lean strongly toward fixed-price contracts for projects that require new technology development. As with other measures in the authorization bill, industry officials are not happy with that provision. “They’re trying to drive a lot more development into the fixed-price arena, and that’s problematical,” Heinemeier said. He said the measure shifts the risk of such projects disproportionately to the contractor, hurting its ability to take on development projects, especially when they involve leading-edge technologies.

The use of fixed-price contracts for development projects “has a history unblemished by success,” Soloway said. Development projects by their nature have many unknown elements, making fixed-price development contracts a bad idea, he said. The new rule could force contractors to increase their prices to cover their added risks, pushing up total costs, he added.

For DOD, however, the lawmakers’ focus on fixed-price contracting is welcome. The risks of such contracts for companies can be minimized if the government does a better job of defining its requirements at the outset, Winkler said. “I think it’s going to drive us to smaller, more manageable development efforts,” he said. The bill’s emphasis on fixed-price contacting jibes with the trend in information systems development toward incremental, spiral development, he added.