Defense outlines change in acquisition strategy

NEW YORK CITY--The Defense Department plans to dramatically realign its acquisition strategy, increasing its focus on competition, rebuilding its procurement workforce and creating more consistent requirements for contractors in the post-award process.

Shay Assad, Defense's highest ranking civilian acquisition official, told a crowd of contractor executives and market analysts on Wednesday that the Pentagon's old ways of purchasing goods and services was not providing sufficient and consistent value.

"We are going to push contractors real hard for significant savings," said Assad, director of defense procurement, acquisition policy and strategic sourcing, at the annual Cowen and Company Defense and Aerospace Conference in Manhattan. "We have got to get a good return for taxpayers."

For too long, Assad said, Defense has assumed too much risk in its procurement procedures, both on programs that might not have been technically ready and on precarious contracting vehicles that failed to hold down costs.

To better predict costs and share risk, the department plans to make a "significant shift" away from cost-plus award-fee contracts. Government watchdogs have found that the Pentagon often paid contractors with high award fees, even if their work was late or overbudget.

Moving forward, Defense will utilize more incentive-based cost-plus and fixed price contracts and rely on multiple companies for long-term agreements.

"We've got to write better contracts that better incentivize industry and get the best deal," said Assad, who also recently assumed the title of acting deputy undersecretary for acquisition and technology. "The world of cost-plus award-fee contracts is over."

Defense is setting up a system that locks in requirements -- which can change rapidly during a new congressional session or administration -- at the time of contract awards. A Defense acquisition steering board would review post-award changes.

Also, any contract worth more than $1 billion will be reviewed by a peer Defense agency, in an effort to share best practices and to reduce waste.

Reiterating many of the points Defense Secretary Robert Gates outlined in late January during a pair of congressional appearances, Assad said the department must increase the size and capability of its civilian acquisition workforce dramatically.

In 2001, the Defense Department spent $138 billion on contracts through approximately 19,000 Pentagon contracting officials. In 2008, procurement spending reached $396 billion -- $202 billion of it was for services -- but the workforce has remained stagnant, with only 25 new positions added in the past seven years.

In 2008, Congress appropriated funding to beef up Defense's contracting workforce. And the department's new proposed budget, which will be released in the next two to three months, could include spending for more positions.

While Defense works to increase its civilian acquisition rolls, the department also will be enforcing stricter ethical and revolving-door standards for its workforce.

Echoing a point frequently made by the new administration, Assad said Defense acquisition employees "need to keep at arm's length from industry. This will benefit the warfighter and will benefit the taxpayer."

Defense also will look to increase savings through more contract competition. In 2008, the Pentagon competed 64 percent of it's nearly $400 billion in contracts, a record for the agency. But, Assad said, "It's still not enough," because many of those contracts awards involved only one bid.

"We are going to align profitability [for contractors] with performance," he said.