Its Not our People, Its our Processes

We've written a couple of posts recently concerning Representative Thornberry's proposals to reduce the size of the Defense Department's "fourth estate". See, for example, Proposal to Cut $25 Billion from DoD Support Agencies and Comprehensive Pentagon Bureaucracy Reform and Reduction Act.These proposals have garnered a lot of attention in the press. The idea that you could abolish seven major Defense agencies and no one would notice or the persistent stories in the press that fourth estate workers were standing around with their hands in their pockets has got to have had a demoralizing effect on affected staffs.

Yesterday, Patrick Shanahan, the Deputy Secretary of Defense, went on the offensive against such notions. While welcoming Thornberry's interest in the "fourth estate", Shanahan announced that he too has been working to reform the Department. He believes that there is tremendous opportunity for reform and reforms would significantly boost productivity and modernization in the Department. And, the fact that Thornberry is also approaching this issued gives support to DoD's efforts.

But the main point of Shanahan's comments was to ensure that his and Thornberry's efforts were not viewed as a "people problem" or as a way to reduce the workforce. "What we find is we have processes and management systems ... that have evolved over years and years that were never designed to scale to the size that we are, and so people are stuck in processes that ... aren't as productive as they could be."

Shanahan added: "People are the solution, not the problem. From a management standpoint, the easiest thing to do is redraw the lines and boxes on an org chart, but it is actually the hardest thing to implement." The Department must look at processes. "It's our processes, not our people".

Was that enough to inspire a demoralized workforce?

Progress Report on Other Procurement Reform Initiatives

We've been discussing the Section 809 Panel and everyone's hope that it brings significant reforms to the acquisition process. Ultimately, many of the recommended reforms are going to require legislative action to implement so this isn't something that will happen overnight. Also, we don't know how many sacred cows that might be sacrificed bringing real reform into the process so we'll just have to wait and see how it all develops.

The Section 809 Panel is not the only organization looking at simplifying the acquisition process however. The Department of Defense (DoD) has begun a review of 716 regulations including 350 acquisition-related rules in compliance with a White House executive order from last February that seeks to reduce the regulatory burden on citizens and businesses (see Executive Order on Enforcing Regulatory Reform).

Concerning the 350 acquisition-related regulations, DoD is implementing a multi-step process to assess the procurement rules and make its recommendations. It is being led by the Defense Federal Acquisition Regulations personnel and includes

1. Historical research an all 350 procurement-related regulations (presumably this is completed).
2. Determining the intended outcome of the regulations - the reasons for issuing them in the first place. The committee might discover that many of these regulations address problems that no longer exist.
3. Consulting with subject matter experts to assess whether a regulation offers benefits to the Department or to the acquisition process. This is intended to answer the question as to whether the regulation is still needed.

The Department expects that any changes will occur in fiscal year 2019 and 2020 since the rule-making process to alter or remove existing rules could take 18 to 24 months. That's a long time. Maybe the committee should recommend, as a first step in the reform process, ways to speed up the rule-making process.

Defense Acquisition Streamlining and Transparency Act - Part 3

Last Friday and Monday, we discussed certain aspects of the proposed Defense Acquisition Streamlining and Transparency Act that seek to speed up the acquisition process by streamlining auditing processes that are "time consuming and low value" so that Government contract audit organizations such as DCAA (Defense Contract Audit Agency) will begin competing head to head with commercial organizations to perform incurred cost audits. If you missed those postings, you can go back and read Part 1 and Part 2.

Today we want to focus on another key provision of the proposed legislation - streamlining the way the Government buys goods. The Government is statutorily required to conduct market research, competition, and price comparisons prior to purchasing products. The resultant processes however are onerous and time consuming. Even for simple products, market research often entails issuing requests for information, while contracting and price comparisons can involve detailed requirements development and evaluation of in-depth proposals.

The proposed legislation would require the Department of Defense to buy commercial-off-the-shelf-items through the same marketplaces that businesses use to acquire goods; places such as Amazon.com or office depot or uLine. Marketplaces would be limited to those that are commonly used in the private sector; provide a dynamic selection of products and prices from numerous suppliers; and provide procurement oversight controls such as two-person approval for purchases.

The House Armed Services Committee (HASC) and its chairman, Mac Thornberry believe that this commercial proposal would allow off-the-shelf items to "radically" reduce costs and lower time to acquire commercial products.

There are a number of cautions introduced by the new legislation. For example, the marketplace cannot feature or prioritize a product of a supplier based on any compensation or fee paid to the online marketplace by the supplier that is exclusively for such featuring or prioritization on the on-line marketplace. Also, suppliers will need to be screened to ensure that they have not been suspended or debarred.

You can read the entire bill here. As we stated earlier, the intent of the HASC is to roll these provisions into the fiscal year 2018 NDAA (National Defense Authorization Act) so its got a long way to go before it becomes law, if it even survives. So far however, we have not heard any significant objections to this bill.

"Eliminating Requirements" Study - Reduce Overlaps between DCAA, Internal, and SOX audits

We are now on our fifth and final installment covering the results of a recent study conducted jointly by the Department of Defense and one of the Departments FFRDCs (Federally Funded Research and Development Company). The title of this study is "Eliminating Requirements Imposed on Industry Where Costs Exceed Benefits" and the full report can be downloaded and/or read by clicking here. Although this study covered several areas such as acquisition of commercial items, application of earned-value management (EVM), the Truth in Negotiations Act (TINA), and application of the Buy American Act (BAA), we are limiting our coverage to the topic called "Contract Auditing and Management" of which there were five recommendations. Previously we covered Reducing the Time for Record Retention, Eliminating Duplicative Effort in Reviewing Forward Pricing Rates, Eliminating Contract Closeout Backlogs, and reducing the incurred cost audit backlog. Today we will be covering a recommendation to reduce DCAA's (Defense Contract Audit Agency's) incurred cost backlog. In this final installment, we will cover a recommendation that would have the Government rely on other auditors work besides DCAA (Defense Contract Audit Agency).

Many of the 12 contractors participating in this study asserted that many sub-processes examined in SOX (Sarbanes Oxley) duplicate or overlap with DFARS (DoD FAR Supplement) business system processes. In particular, one contractor identified multiple SOX-DFARS overlaps for the Accounting System and some overlaps for the Purchasing System and Material Management and Accounting System). Other participants noted that their internal audit staffs' work overlapped to varying degrees the audit procedures performed by DCAA. 

DCAA, of course, would readily agree that the potential for overlap exists. In fact, the Agency has been trying for years to access both SOX audits and internal audits. We know first hand that some of the largest DoD contractors have steadfastly refused to share SOX audits with the Government, claiming that there is no statutory or regulatory requirement that they do so. Additionally, DCAA has been trying for years to obtain routine access to internal audit reports and working papers, going so far as to introduce legislative proposals to that effect. So on one hand, contractors claim that there is duplicative effort but on the other hand, will not share the results of other audits with the Government in order to assess what can and cannot be relied upon during audits of contractor business systems.

The recommendation bears this out. The study recommended that DoD put together a team to engage with willing contractors on proposed approaches and provide an assessment. The key phrase here is "willing contractors". It is obvious that there is not a statutory or regulatory requirement that compels contractors to provide Government access to other audits so in order for this recommendation to proceed, the DoD must find "willing contractors" who will voluntarily share their audit reports.

"Eliminating Requirements" Study - Reduce Incurred Cost Backlog

This is the fourth of our five part series covering the results of a joint study conducted by DoD and the Institute of Defense Analysis (IDA). Each part examines one of the five recommendations put forth by the panel impacting contract audit and contract management. Previously, we covered Reducing the Time for Record Retention, Eliminating Duplicative Effort in Reviewing Forward Pricing Rates, and Eliminating Contract Closeout Backlogs. Today we will be covering a recommendation to reduce DCAA's (Defense Contract Audit Agency's) incurred cost backlog.

There is not doubt that contractors are financially impacted by Government delays in meeting their contractual obligations. However, it is difficult to quantify the cost of delays, disruptions, and other encumbrances. The responses received from participating contractors did not include quantitative costs associated with specific inefficiencies associated with DCAA auditing or DCMA contract management. Therefore, the study group could not perform a cost-benefit analysis of recommended changes. Instead the study identified what it felt to be the most promising recommendations based on a subjective assessment of their merit.

Study participants asserted that given DCAA's limited resources that are being deployed to cover a wide breadth of areas, there have been many starts and stops in audits. The result has been for audits to be cancelled at various stages after the company and DCAA have invested resources to start the reviews. The consensus among participants was limit DCAA audits to incurred costs and audits ob business systems.

DCAA, of course, did not agree with this recommendation. The Agency noted that its resources are focused on risks to the Department and the taxpayer. DCAA uses its entire portfolio of audits (incurred cost, forward pricing, business, systems, truth in negotiation, cost accounting standards, etc.) to focus resources on what it believes to be the highest risk audits. DCAA also noted that it has significantly reduced its incurred cost audit backlog. From fiscal year 2012 to mid fiscal year 2015, DCAA has reduced its backlog by nearly one-half.

While acknowledging DCAA's recent progress in reducing incurred cost audit backlog, the study group recommended that DCAA continue to analyze and assess progress of on-going Agency efforts to decrease backlogs of incurred costs and report on its efforts to both the Government and industry. DCAA agreed to continue to look for ways to reduce the backlog more quickly.

"Eliminating Requirements" Study - Eliminate Contract Closeout Backlogs

We've been working our way through a report on a study conducted by DoD in conjunction with one of its captive FFRDCs (Federally Funded Research and Development Centers), the Institute for Defense Analysis. We've been focusing on recommendations pertaining to contract auditing and management - the topic that seemed to be of most interest by the 12 largest DoD contractors that were part of the study. So far we've looked at contractor recommendations to eliminate the one year record retention period for documents that have been scanned (that's a no go) and recommendations to eliminate duplicate efforts by DCAA and DCMA in reviewing forward pricing indirect expense rates (that's been sent back for further study). You can read Parts 1 and 2 of this series by clicking here and here, respectively.

Today we will look at a recommendation by multiple contractors for DCAA and DCMA to aggressively address contract closeout backlogs through a risk-based approach. These contractors have noted that despite renewed attention to the problem by DCAA and DCMA, contract closeout backlogs have not improved.

DCMA and DCAA both disagree with contractors' assertions that no progress has been made in reducing the contract closeout backlog. Even so, both Agencies admit that contract closeout backlogs continue to be an issue and both DCAA and DCMA are "open to considering additional initiatives" to clearing out the contract closeout backlog. To this end, the study recommends that DoD establish a team to assess contract closeout initiatives proposed by contractors.

Two of the initiatives recommended by contractors include (i) "en masse closeouts" that gives the Government 0.005 percent (i.e. one half percent) of contract values as protection against potentially unallowable costs and (ii) give authority to the head of an agency to close out contracts that are administratively complete, was entered into 10 or more years ago, and has an unreconciled balance of less than $100 thousand.

Go to Part 4.

"Eliminating Requirements" Study - Reduce Duplicative Efforts in Rate Reviews

Yesterday we began a series discussing the recently issued "Eliminating Requirements" report (as it has become known). If you missed Part 1, click here to begin your reading. As we mentioned, this series will be focusing on recommendations pertaining to contract auditing and management, the topic that garnered the most comments from industry. Yesterday we discussed contractor complaints about the FAR requirements for maintain original paper copies of scanned images for a period of one year. The report did not find the requirement onerous and is not seeking changes to the regulations.

Today we want to discuss a complaint raised by multiple contractors (recall that the 12 largest DoD contractors participated in the study) over the duplication of efforts by DCMA (Defense Contract Management Agency) and DCAA (Defense Contract Audit Agency) in reviewing/auditing FPR (Forward Pricing Rate) proposals. These contractors asserted that having both DCMA and DCAA review forward pricing rates is generally unnecessary since payments based on estimates are corrected when actuals become available.

The report authors submitted the contractor concerns to DCMA and  DCAA. Both Agencies noted the recent workload realignment policies that gave DCMA the single agency responsible for issuing all forward pricing rate recommendations for contractors where DCMA is the cognizant contract administration office. That should reduce duplicative effort. DCMA noted that forward pricing rates are used for more than just billing purposes. They are used to establish fair and reasonable cost determinations on fixed priced contracts and profit/fee considerations on all contracts.

DCMA noted that the contracting officer may need to request audit assistance from DCAA but if it has the capability necessary to perform the required analysis, it does not seek assistance from DCAA.

Nevertheless, both DCMA and DCAA agreed that additional (but unspecified) streamlining opportunities appear possible so with that admission, the report recommended that these opportunities be addressed by the Directors of DCMA and DCAA and be provided to DoD. Now both DCAA and DCMA are on the hook to conjure up some "opportunities for streamlining" that they can present to DoD.

Go to Part 3.

Second National Dialogue to Improve Federal Procurement

The Office of Federal Procurement Policy has launched its second National Dialogue to improve the federal procurement and grants processes with the objective of reducing reporting compliance costs for Federal contractors and grantees. The Agency is looking for ideas on how to reduce the costs associated with obtaining and managing tax dollars awarded through Federal contracts, grants, subcontracts, and sub-awards. The dialogue will be open for two years and if you register, you can comment on or share thoughts on emerging ideas and identify those you believe to be most impactful.

Last year's campaign ended May 2014. Click here to read the results of that dialogue. 118 ideas were posted, 190 comments were received. 548 people/organizations registered. The sharing of EVMS certification reviews that we discussed a couple of weeks ago (see Plans for Reducing the Number of EVMS Certification Reviews) came out of last year's open dialogue.

The popular suggestions in this year's campaign so far, include the following. You can read more detail for each of these by visiting the National Dialogue website:

• Raising the micro-purchase threshold from $3,000 to $10,000. The lower threshold creates a cost of compliance that far exceeds any potential reduction in waste, fraud and abuse that might occur from establishing a higher threshold.
• Require agencies to adopt common research terms and conditions. While NSF, NIH, DOE, NASA, and other agencies have adopted common research terms and conditions, some agencies have opted out. the Council on Government Relations has recommended that the opt-out option be eliminated.
• Eliminate prime recipient monitoring of subs-recipients subject to audit. Where a subrecipient has a current Single Audit report, prime recipients should be able to rely on the subrecipient's auditors and cognizant agency oversight for routine audit follow-up and management decisions.
• Common Federal proposal and award management system. Consolidate federal proposal and award management systems, including payment systems, optimally with significant input from stakeholders.

Contractors are encouraged to participate in this dialogue, if nothing more than casting votes for what will make their jobs easier and reduce the cost of compliance.

BBP 3.0 - Increase Small Business Participation

Today we conclude our five-part series on DoD's latest Better Buying Power procurement reform initiatives (BBP 3.0). This is not a comprehensive series on the matter. To read the full implementing directive, click here. Rather, our aim is to highlight those initiatives that will have a direct (and hopefully positive) impact on the small to medium sized firms desiring to do business with the Government. Today we look at the initiative to increase small business participation. What has this initiative have to do with reform? That has been the goal in Government contracting forever - the Government already tracks such matters and can never seem to realize its small business contracting goals already. Has someone got a better idea all of a sudden? And how does increasing small business participation lead to procurement reform in the first place when it is generally acknowledged that in the case of contracting with small and disadvantaged companies, the Government is willing to pay increased costs to further socioeconomic programs?

Well, the premise here in this initiative is that there is a lot of small businesses out there that could be solicited for work if only Government acquisition personnel had better market research tools. With the proper "tools", the Government could perform market research and ferret out those small businesses that are disengaged or not aware of Government contracting opportunities. With the proper "tools", the Government's acquisition corps could find small businesses to produce "innovative solutions for the Department". So, if some company has a better, more efficient, or more cost effective method of providing goods and services, the Government's market research activities will find them and bring them under contract. Pardon the skepticism but, yeah right.

DoD has established a number of specific actions under this initiative; improved suite of market research tools, study the feasibility of a rationalized approach to market research, study the feasibility of establishing a "superior supplier program" for small businesses, hold small business outreach events, and others. We appreciate DoD's goal to increase small business participation. We just don't understand how that initiative can be called "procurement reform" or how trying to find small businesses with innovative ideas is going to differ much from the already robust SBIR programs.

BBP 3.0 - Increase the Use of Incentive Type Contracts

We continue our discussion of DoD's latest acquisition reform initiatives that are collectively referred to as Better Buying Power (BBP). The latest version is referred to as "3.0" to distinguish it from earlier amalgamations of initiatives called "1.0" and "2.0". We wonder when this will end - probably not until there's a new administration. By then we'll be up to "5.0" if the pace continues.

One of DoD's BBP 3.0 initiatives is to increase the use of Cost Plus Incentive Fee (CPIF) and Fixed Price Incentive Fee (FPIF) contracts, "where appropriate". BBP 3.0 doesn't explain when and where and under what circumstances such type of contracting is appropriate. The Department does tell us however that studies have shown a high correlation between these types of contracts and better cost and schedule performance. (By the way, if you are unfamiliar with the characteristics and differences between FPIF and CPIF contracts, we will address that subject following this series).

In both FPIF and CPIF contracts the impact of contract overruns and underruns are shared between the contractor and the Government based on a formula specified in and by the contract. In either case, there is incentive for the contractor to control costs (and schedules) because contractors can earn more profit or fee.

It is sometimes a tricky maneuver to design incentive structures that work well. The Department is cautioning its acquisition corp against setting incentive structures that substantially eliminate contractor incentives to reduce cost.

DoD expects to update its guidance for employing CPIF and FPIF contracts later this year.

BBP 3.0 - Removing Unproductive Requirements Imposed on Industry

Last week, DoD issued its implementation directive for BBP 3.0 (Better Buying Power Initiative). Although 3.0 was announced last September, the specific implementing instructions took awhile to develop. The Department is concerned that the technological superiority of the US is being challenged by potential adversaries in ways not seen since the cold war. Dollars spent on readiness (e.g. fighting wars) is reducing dollars available for research and development. BBP 3.0 attempts to reverse that trend by partnering more with industry to bring innovation into the Department.

Over the next few days, we will be presenting aspects of the implementing guidance that might have the most direct impact on Government contractors. The guidance itself is 33 pages and much of it pertains to internal affairs. However, there are some tantalizing tidbits that should improve life for Defense contractors.

The first initiative we want to address is the removal of unproductive requirements imposed on industry.

1. Industry has longstanding concerns about statutory requirements to submit and resubmit cost and pricing data. DoD has identified some pilot approaches that it will test to reduce the need for unnecessary cost and pricing data submissions.
2. Industry has indicated uncertainty in their transactions with the Department on commercial item acquisitions. DoD has initiated several actions to streamline and accelerate the Commercial Item Determination process, including issuing policy guidance, increasing training and implementing analytical support tools.
3. In the area of EVM (Earned Value Management) industry has raised concerns that EVM is sometimes applied to inappropriate contract types. Industry has also requested that the dollar threshold for compliance reviews be increased. DoD has now increased that threshold to $100 million which is expected to save contractors $5 million per year as well as allow the Government to re-position some of its staff to more important things.

Some of the specific actions that DoD will undertake to reduce unproductive requirements imposed on industry include

• Initiate a pilot program to demonstrate and quantify impacts of reducing repeated submissions of cost or pricing data (need to weigh reductions against the fear of defective pricing)
• Revise FAR 15.407-1(c) to eliminate the requirement that a contracting officer shall request an audit if a  contractor voluntarily disclosed defective pricing (less work for DCAA)
• Submit a legislative proposal to revise the definition of the term "commercial item" to eliminate items and services merely offered for sale, ease, or license.
• Develop an actionalbe plan to establish Cost and Pricing Centers of Expertise to facilitate Commercial Item Determinations (these Centers of Excellence will reside within DCMA)
• Develop an actionable plan to assess the benefits of streamlining EVMS operations and centralizing EVMS competency and improve consistency of EVMS implementation. 

OFPP's Plan to Reform Federal Contracting

We picked up this story last week from the Federal Times.

It's a fairly long article so you should probably read it fully if you want to understand the grist of OFPP's (Office of Federal Procurement Policy) vision. Briefly stated, OFPP wants to "stovepipe" procurement, that is, centralize procurement across all agencies by categories of spending - information technology, professional services, construction, medical, etc. These categories of spending will be managed by dedicated executives whose job it will be to:

• smooth out pricing variability
• analyze spending data to optimize procurement strategies (whatever that means)
• culling duplicative contracts
• negotiating better deals based on overall government-wide demand

OFPP claims this concept - category management - is widely used in industry and in the UK. It helps ensure that agencies get the same competitive price and quality of performance, it frees up agency acquisition personnel to focus on complex agency specific procurements, and it give vendors one place to go and one person accountable for shaping the strategic direction of that one common category.

Each category will be headed up by a senior official (either from industry or the government) who is known to be an expert in that category. That manager would be able to understand buying trends, what drives cost, new innovations coming, and emerging companies.

To begin, the administration is focusing on 10 categories. By the end of fiscal year 2016, the government will have collected critical contract data for the $275 billion spent in those 10 categories and "tens of thousands of acquisition workers" will be able to access that data to make better decisions.

Sounds good. Will it reduce costs? Stay tuned.

Acquisition Reform? What Insiders Really Think

Last October, the Government Business Council, a research arm of Government Executive (see below for information on Government Executive) conducted a poll of 378 Defense Department employees to gauge their confidence in a number of acquisition related matters. The majority of those polled do not believe that the Pentagon's acquisition reforms (e.g. Better Buying Power) are working.

Here are some of the results:

• Only 30 percent of those surveyed are confident or very confident that the defense acquisition process provides the military the tools it needs to achieve its strategic objectives.
• Only 44 percent are confident or very confident that defense contractors will be able to ensure the military's technological edge through innovation.
•  Hardly anyone, only 8 percent (and 9 percent of polled workers who are in the acquisition/procurement field) are confident or very confident that the Pentagon's Better Buying Power initiative will resolve major defense acquisition problems. 

Concerning questions as to whether the acquisition workforce possess the skills and competencies needed to do their jobs, the results varied by function. For program management, 56 percent of the respondents feel that they have the necessary skills and competencies. For engineering and technical skills, that percentage rose to 64 percent. For contract management however, that confidence drops to 55 percent. One aspect of these poll numbers is that in each of these skill categories, there was 5 to 10 percent of the respondents who didn't know whether they possessed adequate skills and competencies. That should be worrisome.

These results do not really surprise us - procurement personnel have been through reform after reform after reform, and nothing seems to substantially change. In fact, more regulation pile up every week.

You can read more about the Government Executive survey by clicking here.

Govexec.com is a government business news daily and calls itself the premier website for federal managers and executives. Government Executive magazine is a monthly business magazine serving senior executives and managers in the federal government's departments and agencies.

Office of Federal Procurement Announces Another Procurement Reform

The Office of Federal Procurement Policy (OFPP) has a new administrator, Anne Rung, and this new Administrator has her focus set on procurement reform. Last week she issued a memorandum to the Chief Acquisition Officers and Senior Procurement Executives throughout the Executive Agencies announcing the new reforms.

The focus of these reforms is to simplify the "Federal contracting space" in order to drive greater innovation and creativity and improve performance. Industry has long complained about the complexity of the contracting process claiming that it leads to higher costs, slower procurements, and less innovation. That statement rings true. Some of the problems include 100 page request for proposals with overly prescriptive, Government-unique requirements, significant contract duplication across Government, and very little sharing of pricing and other contract information between agencies and industry.

1 Buying as "one" through category management. There is a critical need for a new paradigm for purchasing that moves from managing purchases and price individually across thousands of procurement units to managing entire categories of common spend and total cost through category management. Each category will be led by a senior Government executive who is a true expert in the category and who will develop a Government-wide strategy to drive improved performance.

2. Develop talent and tools across agencies and growing talent within agencies to drive innovation - instill a culture that rewards innovation (whatever that means). Nothing new here. Training has been a hallmark of every procurement reform program.

3. Building stronger vendor relationships. Early, frequent, and constructive engagement with industry leads to better outcomes, according to Ms Rung. Under this reform, OFPP has laid out four objectives.

• Creating better interfaces for government-industry interactions - modernizing the IT infrastructure.
• Removing regulatory barriers to innovation - get rid of useless FAR requirements (and useless requirements contained in individual agency FAR supplements).
• Vendor feedback - new guidelines coming that will allow frank, open assessment feedback by offerors and existing contractors for agencies to consider as part of their ongoing efforts to strengthen the acquisition processes and practices.
• Appointing enterprise-wide vendor managers - one Government manager per contractor instead of multiple contracting officers per contractor.

Best get started, Ms. Rung. You only have a couple of years and then you'll be gone when a new administration shows up. Your successor, no doubt, will have a reform agenda as well, but probably of a different flavor.

New Recommendations for Reforming the Acquisition Process

The NDIA (National Defense Industrial Association) issued a report last month entitled "Pathway to Transformation". It lays out twelve recommendations pertaining to acquisition reform in three broad categories; authority and responsibility, matching requirements to resources, and evidence based decision making. The entire report can be downloaded or read here.

A lot of the recommendations seem old because they have been bandied about for years; more commercial pricing, delegate more authority, get rid of regulations, and improve management of the acquisition workforce. But, being former Government auditors ourselves, the one that caught our eye first concerned DCAA (Defense Contract Audit Agency).

Here's NDIA's recommendations for DCAA.

Problem Description: Inefficient audit practices are delaying the acquisition process and adding unnecessary overhead costs to the government and to industry support of the acquisition process.

Root Cause Analysis: In a compliance-driven process, audits are seen as key to successful system performance, but current audit requirements exceed DCAA's capabilities and resources. Recent statements by DCAA leaders indicate that 40 percent of DCAA personnel have five or fewer years or less experience in government auditing, which, when combined with vigorous assertions of audit independence, can lead to wasteful expensive audit practices. Decentralized DCAA management allows variation in practice and culture among its auditors which can also be unhelpful.

Solution Proposal: Improving the relationship of government auditors with government vendors is one of the greatest challenges in acquisition policy, since auditors must simultaneously look for inaccuracies in vendor reporting or documentation to protect the taxpayer while also avoiding unnecessary waste caused by inefficient audit practices.

Two general principles applied at the level of the individual auditor help to accomplish these goals:

     1.a risk-based approach to auditing that focuses on materiality, and

     2. an advisory approach to auditing that focuses on helping vendors come into full                compliance rather than an adversarial approach that seeks to identify every possible          error in vendor reporting and documentation and penalize them for it.

The law does not specify these practices, nor should it, since individual auditors ultimately need the flexibility to behave toward the vendor in the manner most befitting the given circumstances, which no law could be flexible enough to capture in its entirety. Instead, the problem is ripe for oversight and management, and therefore NDIA recommends an approach that combines the two.

10 USC 2313a which establishes an annual reporting requirement for DCAA, should be amended to include a report of DCAA's efforts to align its audit policies and practices across its various regions. At the organization level, increased commonality will encourage organizational learning as the regions connect with each other to identify and adopt best practices and to learn from mistakes.

Because most audit issues are unique to the company in question, the congressional defense committees should encourage DCAA to create outreach opportunities through meetings with companies, industry trade associations, and other contractor groups, to identify vendor complaints, review the facts, and resolve them effectively for both the vendor and auditors involved. Just as companies should not be treated as adversaries by auditors, neither should auditors be treated as adversaries by companies, and both should approach the audit process with a desire to learn and improve outcomes.

Everyone complains about the auditors and in a few cases, such complaints are justified. But these recommendations display a lot of ignorance on NDIA's part as to the nature and purpose of auditing. First of all, auditing, should never be allowed to degenerate into cozy relationships. One only has to recall the Enron scandal that was revealed in 2001 to see what can happen when clients and auditors blur the standards of independence. The auditors are there to protect the Government's interest, not to join the company's softball league. And, NDIA's comments about materiality are way off base. Materiality, significance, and risk assessments are factored into every audit performed. No audit entity is going to spend time reviewing immaterial items. Audit procedures are designed to provide "absolute" assurance, but "reasonable" assurance.

Its popular to criticize the auditors and perhaps NDIA threw in these recommendations as a bone to its 91,000 members. It is unlikely that such recommendations will contribute to acquisition reform unless one redefines reform as eliminating the auditors.

Seek Improvements, Not Reform

In an article published yesterday on DoD's website, Undersecretary of Defense for Acquisition, Technology, and Logistics Frank Kendall was quoted as saying that it is better to focus on acquisition improvement than it is to try and reform the entire system. When people consider "improvements" instead of "reform", it confines their thinking to specific things that they can do that will make a difference. Kendall stated that you can't wave away the entire procurement system, start over, and expect to have something that looks very, very different from what you have today.

People have been talking about acquisition reform for a very long time. Back in 1794 (yes, that's 1794) when the Navy was building six frigates, Congress was alarmed at the cost growth and schedule slips and demanded reform. Ever since, every few years with each succeeding administration, people have wanted to get their arms around the elephant in the room. People within DoD (and probably other Agencies as well) just roll their eyes when the next round of faddish fluff rolls around - nothing significant ever changes.

Kendall believes that there are very simple factors that drive outcomes in acquisition - professionalism on the government and industry sides, as well as leadership and hard work.

Kendall stated that DoD is doing hundreds of things to try and improve its acquisition processes but the article doesn't say too much about what those "things" are. The only example he gave was a statement that "his team" team is working with industry to help reduce overhead which undoubtedly surprised many in the contractor and procurement community who are oblivious to any such activities. He also stated that overhead adds costs but not value, a position disputed by most contractors including Kendall's old bosses at Raytheon.

You can read the entire article here.

DoD Publishes BBP 2.0 Initiatives

Last week, the Under Secretary of Defense for Acquisition and Logistics issued a memorandum to the Defense Acquisition Workforce introducing his preliminary version of the Better Buying Power 2.0 initiative. Although BBP 2.0 is intended for the acquisition workforce, "industry" stakeholders are also invited to comment on these 36 initiatives intended to improve the way that the Department does business.

We encourage contractors (and prospective contractors) to study these initiatives to determine their potential impact on operations. There are some that try to squeeze more product out of fewer dollars. Here's a sampling:

Better define value in "best value" competitions: In competitive bidding processes, industry tends to default to threshold performance levels because they are less costly and source selections seldom give predictable credit for performance above threshold. In addition, when the Department buys non-developmental items (NDI) or near-NDI products, it often must select among products with varying levels of performance and with inherent cost differentials. The Department needs to improve its ability to define the value to the Department of performance that is above minimum levels so that it can make appropriate source selections and so that industry can bid intelligently. This will spur innovation by providing a predictable basis by which companies can bid enhanced performance with he knowledge that any increased costs are within an acceptable range.

Many competitive awards list a variety of evaluation criteria, specify the relative importance of each and then states that the award will be based on "best value to the Government". A lot of contractors think that this phrase is the Government's opening to award the contract to whoever they want to award it to because it allows subjectivity and judgment in the selection process. So, this initiative seems pretty good to us.

Reduce backlog of DCAA Audits without compromising effectiveness: The Department has a significant backlog in both closeout and pre-award audits. DCAA, with the assistance of DCMA and DPAP, is increasing audit resources and developing a risk-based process for reducing the audit backlog. We expect to make major gains in reducing audit-associated delays in both contract closeouts and pre-award audits in 2013.

All contractors will appreciate having their backlog of completed contracts closed out. The interesting thing about this initiative is the comment that DCMA will be helping DCAA clear out this backlog. We wonder whether this represents a further dimunition of DCAA's authorities and responsibilities.

DoD Says Acquisition Reform is Nearing its Goals

DoD announced last week that it is 18 to 24 months away from completing the implementation of changes in the way it procures goods and services. The DoD initiative, (aka the Better Buying Power Initiative) arose from a mandate to deliver better value to taxpayers and war fighters. The initiative targeted five areas;

1. affordability (the No. 1 priority), 
2. incentivizing productivity in industry (e.g. use more FPI contracts), 
3. promote competition, 
4. improve trade craft, and 
5. reduce bureaucracy.

According to Shay D. Assad, the Director of Defense Pricing, most of the policy and execution plans are already in place and although progress is being made toward achieving those goals, it will take 18 to 24 months to implement the plans among 26,000 contractors and three million contract actions.

We'll just have to take their word for it.