The Road To Hell In Defense Procurement Reform Is Paved With Good Intentions

Last Updated May 1, 2010 11:02 AM EDT

The House of Representatives passed a further set of recommended improvements to defense acquisition yesterday. This follows up on changes made last year to improve acquisition efficiencies. The goal is to save money for the Department of Defense when it purchases commodities such as fuel.

Amendments to the bill, however, may make it harder for contracts to be awarded and executed, which could end up costing the government more money -- and certainly wasted time. Kind of counterproductive, when you think about it.

One of the major changes revised the criteria for awarding contracts to include a fifty percent weighting for lowest cost. Most defense contracts are awarded on a "best value" approach, which allows the contracting officer to choose a more expensive bidder if they offer higher quality or more capability then the minimum requirements of the contract. With this provision, best value has been downgraded in importance, which could lead to contractors that lowball their bids and then fail to deliver. The change will also mitigate the effect of a contractor's past experience, so that a company with little or no prior work in a given area may compete more evenly. Of course, that past experience is often critical in getting a job started right and being able to carry it out.

This provision ties in with another amendment that's supposed to encourage the Pentagon to seek out new suppliers by ending the practice of bundling contracts. This is when several small contracts are put together to make a larger one. Such bundles are quicker and easier to award, but it limits the number of bidders because smaller companies won't be allowed to submit proposals. Small business groups have long sought this change, as they argue that bundling discriminates against their members.

The loss of bundling, though, will require the processing of more contract bids and awards at some cost to the government and companies. It may also delay the awards, since a larger number of proposals will take more evaluation.

The bill would also allow the government to change suppliers if one comes in with a bid fifteen percent lower once a contract is awarded. This will be tricky to manage, since the original bid winner will have to agree to this -- which may make it more difficult to find bidders in the first place. This provision might also encourage lowball bidding.

The decision to expand the industrial base by casting a wider net for suppliers is certainly a good idea. The U.S. defense industry -- and that of the rest of the world -- is now dominated by several large companies that provide complex systems such as ships, aircraft, missiles and armored vehicles. This limits competition and may force prices up.

New suppliers with no track record of performance, of course, can create a variety of problems for the government. Large, established contractors like Boeing (BA) or Raytheon (RTN) have big, experienced and generally stable workforces. New providers will be dependent on key individuals who may leave or move to another project. Those who fail to deliver will also create cost and schedule problems that waste precious defense dollars.

Congress has no shortage of ideas to help the DoD manage its programs more effectively, but not all are good ones. This latest round may end up saving money, but at the cost of limiting the flexibility of contracting officers to deliver the best product most efficiently. In times of war, time is often more valuable then money, as speed can save lives -- think no further than the program to up-armor Humvees in Iraq to protect soldiers from roadside explosives. Faster contractor performance might end conflicts sooner, which would save a lot more money then saving fifteen percent here or there.

  • Matthew Potter

    Matthew Potter is a resident of Huntsville, Ala., where he works supporting U.S. Army aviation programs. After serving in the U.S. Navy, he began work as a defense contractor in Washington D.C. specializing in program management and budget development and execution. In the last 15 years Matthew has worked for several companies, large and small, involved in all aspects of government contracting and procurement. He holds two degrees in history as well as studying at the Defense Acquisition University. He has written for Seeking Alpha and at his own website, DefenseProcurementNews.com.