Trending Up: Back to the Basics — Choosing the Right Contract Type
Last November Mr. Frank Kendall, Under Secretary of Defense for Acquisition, Technology and Logistics, released the preliminary version of Better Buying Power 2.0. Of the 36 initiatives released for comment, the one that could have the biggest impact for both Program Managers and Contracting Officers may be the one with simplest execution and minimal implementation burden.
The “Employ appropriate contract types” initiative recognizes that one size does not fit all, and that the DFAR and FAR already provide a range of contract types. Eliminating the perception that Fixed Price or Fixed Price Incentive contracts are the only choices, and allowing Program Managers and Contracting Officers to select the most appropriate type, can truly better the Government’s power to buy the right products and services at the right price. The best part, it does not require any new policies or procedures.
Trending Up: Modular Acquisition and Contracting
I see a continuing trend in agencies using and establishing more flexible contracting methods to support the need for speedier delivery of working capability for capital asset investments, particularly major IT systems. The Clinger-Cohen Act, the FAR, and OMB require that agencies “should, to the maximum extent, use modular contracting for an acquisition of a major system of information technology.” They see the clear benefit in this usage, such as a way to do more with less given today’s economic environment, speeding time to ROI and mission accomplishment, capitalizing on rapid technology changes, and mitigating risk by “eating an elephant in bite size chunks.”
The response to the call has been to establish approaches to acquire and deliver capability modularly through ways such as agile software development and program management. However, there is also a need to use and establish more flexible contracting methods to support the modular approach. Commonly used methods are often not the most effective way to support modular principles, resulting in adverse cost, schedule, and performance impacts. Therefore, greater emphasis on expanding the available toolkit will arise. For example, new or modified tools such as innovative contract vehicles, procurement types, and acquisition methodologies, like awarding modular efforts via Requirements Contracts, will be in demand to scale to the increased demand for modular acquisition.
Trending Up: Agile Approach to Modular Acquisition
Most Information Technology (IT) acquisitions are operating in 18-month cycles to allow for changes in technology and to allow for greater flexibility. The Agile methodology applied to modular acquisition eliminates the traditional Big Bang approach which typically requires a much larger budget and sunk costs. The modular approach allows for smaller incremental investment of funds into the different increments as they roll out, which enables program managers to better execute the budget in an era of fiscal constraints. Two other benefits to this approach are: increased opportunities for small businesses to bid; Program Managers having increased visibility into the performance of contractors.
The contracting strategy in an Agile IT environment often requires new approaches such as utilizing an IDIQ vehicle for the requirements and the architectural design and software development, followed by using a blanket purchase agreement (BPA) for software operations and maintenance. This streamlined approach by way of a simplified acquisition cycle saves time - due to less administrative burden (e.g., front end planning and back end source selection evaluation times) in awarding small orders, and more access to a greater range of sources to fill emerging requirements.
Trending Down: The Should-Cost Analysis
While Should-Cost Analysis has received considerable attention in recent years, especially in the Department of Defense, Should-Cost Analysis requirements will be lightened or overcome by the difficulty of conducting a detailed analysis without the necessary subject matter expertise. As noted by the Government Accountability Office in a March 2012 report, Should-Cost Analysis depends upon an increased investment of time and resources at the beginning of the acquisition process as well as an awareness of cost performance throughout a program’s life cycle. An effective Should-Cost requires weeks at the manufacturer’s plants analyzing processes and production methods to identify efficiencies.
The resources and expertise needed to conduct a thorough Should-Cost Analysis are limited in most government agencies and will further lengthen procurement lead time. Today’s Should Cost “REDUX,” using statistical analyses and assumptions will prove to be no more effective than a detailed independent government cost estimate (IGCE) founded upon a sound basis of estimate. Already, DOD’s Better Buying Power 2.0 has redefined Should-Cost as setting cost targets “below IGCEs” and managing “with the intent to achieve them.” As an alternative to Should-Cost Analysis, Integrity recommends increasing competition to generate savings, and incorporating Incentive Fee contract types with profit or fee adjustment formulae that motivate and reward the contractor for effectively managing costs.
Do you agree with our forecast? What emerging trends are you seeing in acquisition and program management? Read More