CAPITOL HILL: House Armed Services Committee Chairman Rep. Mac Thornberry’s third attempt to improve how the Pentagon buys weapons aims to simplify defense procurement and cut down on waste by using commercial buying methods. It directs the Pentagon to use online marketplaces such as Grainger, OfficeMax or Staples to buy items that currently are acquired through the GSA schedule or through the federal contracting process.
Thornberry has been an ardent critic of the defense acquisition bureaucracy for being expensive, cumbersome and an impediment to innovation. Committee aides who briefed reporters on Wednesday said the chairman’s key motivation is SIMPLY to “get stuff to warfighters better and faster.”
The first two rounds of procurement reforms in fiscal years 2016 and 2017 focused on big picture organizational issues such as shifting authorities from the secretary of defense to the individual services, and the breakup of the office of the undersecretary of defense for acquisition and technology. This latest proposal digs deeper. Notably, it takes a big shot at the GSA schedule, which has been regarded as a simplified approach to buying commercial items. The HASC concluded that GSA schedule prices are inflated due to red tape. It has become increasingly complex and expensive for vendors to get on the GSA schedule, which drives many potential bidders away from the government market, the aides noted.
Commercial online marketplaces would offer better and cheaper alternatives, the draft legislation argues, and would allow the Defense Department to get more competitive pricing. Defense officials often complain that vendors overcharge for commercial items, so shifting to online marketplaces would provide more transparency and more accurate pricing data, one of the committee aides said: “In this regard, DOD would operate like any other business.”
Another potentially controversial provision in the draft bill tightens oversight of the Pentagon’s $150 billion annual spending on services contracts. Thornberry believes there is little accountability in how the Pentagon contracts services, and suspects that many are unnecessary. However, the aides noted that they do not have an actual estimate of what services should be contracted out. That is precisely why HASC would demand that the Pentagon submit data annually with each budget submission on its anticipated requirements for contracted services.
The committee estimated that about 150,000 service contracts were awarded in 2014. Most are for small amounts but, over time, they add up to real money. “We don’t know how much is unneeded,” one aide said. “But we know it can be reduced.” The provision is intended to “improve transparency of how DoD decides what services to contract out,” the aide told reporters. “We think this will result in the acquisition of fewer services, which will save DoD money.”
In another significant provision, HASC calls for the Defense Contract Audit Agency to cut back on certain types of auditing of defense suppliers and let contracting officers turn some of that work over to private-sector accounting firms. Specifically, contracting officers would have discretion to recommend whether to outsource “incurred cost audits,” those that scrutinize contractors’ expenses on already completed work. Those audits create a huge backlog at DCAA and often don’t save the government much, the aides said. Instead, DCAA should spend more of its time and effort on “forward pricing” audits that look at contractor proposals. “We expect DCAA to focus on contracts that generate more return on investment,” said the aide.
The draft bill also addresses a major issue of great interest to Silicon Valley firms and other highly innovative parts of the economy. the Pentagon’s demands for weapon systems’ intellectual property rights that are usually owned by the manufacturers. The Defense Department has argued that it needs the technical data so it can upgrade and maintain weapon systems in-house. Companies, meanwhile, have complained that the government has been too aggressive about IP rights and that giving up their IP undercuts their business. The HASC bill calls for even-handed negotiations that would, ideally, ensure both sides get a fair deal. The point is to “restore the balance between government and industry,” said the aide. “This has been a tension point for a long time. What we hope is that we can find the sweet spot.”