Affordability and Efficiency—Or: How Ash Carter and Frank Kendall Foiled Robert Gates
Six or more years ago we published many blog articles discussing an initiative started by then-SECDEF Bob Gates. In a 2010 speech at the Eisenhower Library Gates called for an initiative to drive $102 billion of waste and inefficiency out of Pentagon “overhead costs” and transfer those savings to the warfighters. A good starting point for a review of Gates’ intention can be found here.
Within six weeks from the speech, Gates’ Undersecretary of Defense (Acquisition, Technology & Logistics), Dr. Ash Carter, had met with leaders of major defense contractors and had demanded savings of $66.3 billion dollars over five years, to be created by cost reductions to current programs.
Astute readers might notice what we pointed out at the time: somehow the drive to reduce a bloated Pentagon bureaucracy had been turned into a drive to reduce contract costs. Funny how that little change in direction happened ….
It was at that time that Dr. Carter announced an initiative to “restore affordability and productivity in defense spending”—an initiative that quickly became known as “Better Buying Power” (or BBP). That was BBP 1.0. Over the next six years, the defense acquisition workforce would receive additional direction via BBP 2.0, 2.1, and 3.0. Over the next six years, Gates moved on and was replaced by Chuck Hagel—and then by Ash Carter. Carter moved up and so did Frank Kendall, who became the next USD (AT&L). Later incarnations of BBP were issued under Kendall’s imprimatur.
Thus, Gate’s attack on Pentagon overhead, which we dubbed the “efficiency” initiative, was overtaken by the Carter/Kendall attack on program costs, which we dubbed the “affordability” initiative. BBP got all the press (for good or ill) and the efficiency initiative seemed to fade away—as do so many well-meaning attempts to streamline the incredibly challenging defense acquisition environment by reducing the bureaucracy. The entire initiative just … died. We never heard anything more about it over the intervening six years.
Until now.
The Washington Post reported that the Defense Business Board actually studied the issue. It hired McKinsey to help understand how the Pentagon spent money on the “Fourth Estate”—which is what the military services call the defense agencies—mostly staffed by civilians—that support the military branches. According to WaPo, the McKinsey study found the following:
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DOD spends 23 percent of its budget on “overhead and core business operations such as accounting, human resources, logistics and property management.” Those Fourth Estate functions employ 1,014,000 people. WaPo reported “The Pentagon has almost as many people working desk jobs as it does active-duty troops.”
The DBB concluded that the Pentagon could save taxpayers some $125 billion over five years by better managing its enormous Fourth Estate bureaucracy.
The bureaucrats pushed back.
Frank Kendall was the first to push back, according to the WaPo story, which reported “Kendall put up a stiff fight. He challenged the board’s data and strenuously objected to the conclusion that his offices were overstaffed.”
Next, according to WaPo, Ash Carter—by then SECDEF Carter—killed the study by ignoring it. The DBB chair was quoted as saying: “Unfortunately, Ash — for reasons of his own — stopped this.” A SECDEF spokesperson responded by saying “the Pentagon chief was busy dealing with ‘a long list of national security challenges.’ He added that [Deputy SECDEF Bob] Work and other senior officials had already ‘concluded that the report, while well-intentioned, had limited value.’”
To our way of thinking, it is no surprise that the two biggest detractors of the study were Carter and Kendall. It seems to us that those two individuals aligned on the attack on contract/program costs and consistently ignored any efforts to attack internal Pentagon overhead. History seems to show that Carter, in particular, was never a champion of the “efficiency” initiative and his focus—from the very beginning—was on the “affordability” initiative. Kendall took over the “affordability” attack (called Better Buying Power)—whether out of a sense of loyalty or opportunism we couldn’t say—and ran with it, making it a key accomplishment of his (soon to be ended) tenure as USD (AT&L). Therefore, it should come as no mystery why those two individuals were at the forefront of the bureaucratic pushback. Their positions on the DBB study were consistent with every other position they had taken on the topic since 2010.
In the end, the results of the report were “suppressed” and “The Pentagon imposed secrecy restrictions on the data making up the study, which ensured no one could replicate the findings.” Except The Washington Post found the study and published it. We taxpayers owe them a debt of gratitude.
All in all, a good example of why significant reform of the defense acquisition environment is so difficult.
Taking the “I” Out of IRAD
 Lots of churn on this topic during the past year. In fact, 2016 might be best characterized as the year when the Department of Defense got serious about applying central management techniques to what has historically been known as contractors’ “independent” research and development efforts. We’ve written quite a few articles on the topic, most of which concerned Mr. Frank Kendall’s efforts to implement his Better Buying Power initiatives to make IRAD more “efficient”.
Our opinion on BBP and its attacks on IRAD are well documented. We will not elaborate on it here.
Over at Dentons, a government contracts article notes problems implementing the recent DFARS rule that requires contractors to engage in “technical interchanges” with DOD personnel in order to make their IRAD expenditures allowable costs. We wrote about our concerns with the rule here. The Dentons practitioners noted other concerns, including the fact that DCMA recently issued guidance to its contracting officers that they are not to assist contractors in arranging those technical interchanges.
According to the Dentons article—
On November 21, 2016, the Defense Contract Management Agency (DCMA) issued guidance to its contracting officers instructing them to refer contractors’ requests for information concerning their points of contact for technical interchange purposes to the Office of the Assistant Secretary of Defense (Research and Engineering) (OASD R&D) or their ‘buying commands.’ … the guidance fails to discuss the elephant in the room, namely that contractors have been reaching out to OASD R&D and requesting technical interchanges, but have not been receiving responses. Thus, with 30 days to go before many contractors begin their FY 2017, contractors are unsure whether they will be able to technically interchange with appropriate DoD technical or operational personnel prior to incurring FY 2017 IR&D costs. As a result, contractors are uncertain about the allowability of the costs of their 2017 IR&D projects because these projects may begin without a technical interchange. Potentially more concerning, some contractors’ FY 2017 began prior to November 4, 2016, the date the final rule was published. While the final rule is clear that the requirement to technically interchange does not apply prior to the date the final rule was published, it does not address whether IR&D costs incurred on November 5, 2016, are allowable costs, absent a technical interchange.
(Emphasis added.)
If you go read our prior article on the topic (link above) you’ll see we actually predicted that result. Go us!
So the new rule can’t be implemented because the technical side of DOD won’t cooperate with the acquisition side. As commenters told the DAR Council would be the case. The DAR Council did its usual thing and ignored the input and pushed the rule forward despite the warnings. They simply did not care. It was something required by BBP and Frank Kendall, and to hell with all the naysayers.
You can thank Mr. Frank Kendall, USD (AT&L), for this one.
In related news, on 01 December 2016 the head of the Defense Procurement and Acquisition Policy (DPAP) published a DFARS Class Deviation that acknowledges the new rule isn’t working. The Class Deviation permits contractors to hold their technical interchanges with DOD personnel anytime during 2017, even if the IRAD projects have already started for the year. (The rule required that the interchanges take place prior to incurring any expenditures.) The Class Deviation purportedly is required “to afford contractors a phase-in period to develop processes and procedures.” Left unsaid is what the Dentons practitioners called “the elephant in the room”—i.e., that nobody is home at the Office of the Assistant Secretary of Defense (R&D).
Many contractors simply cannot schedule the interchanges because OASD (R&D) will not cooperate. DCMA has washed its hands of any responsibility to implement the rule. The Class Deviation gives DOD a year to figure out its own areas of responsibility and processes; the statement about contractors’ needs is simply window-dressing.
Did we mention you can thank Mr. Frank Kendall for this wonderful situation?
In related news, it seems Mr. Kendall is soon going to be out of a job, according to reports.
It will be interesting to see what happens to the rest of his satrapy over the next year.
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We Never Talk – And Why
Our previous article was about various attempts to get contracting officers to communicate with industry. We noted that the attempts had a fairly long pedigree, reaching back at least five years to the efforts of Dan Gordon, then OFPP Administrator. We concluded that if Mr. Gordon’s efforts were ineffective, it was doubtful that revising the FAR at the direction of Congress was going to be any more effective.
We shared the article with a couple of folks we know, including Vern Edwards. Vern had some thoughts of his own that he was kind enough to share and to give permission for us to document in this follow-on article. In our 15-minute-plus discussion, it became clear that we agreed on all points. Indeed, Vern’s thoughts echoed the article that we intended to write, before we got caught up in the idea of an acquisition leadership that kept doing the same thing over and over while expecting different results—and an acquisition workforce that had learned to ignore leadership direction.
Those thoughts:
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Vern noted that the original Dan Gordon Memo was vague and offered little in the way of concrete direction. It’s tough to get people to follow your direction when it’s not specific. It’s tough to determine whether or not your direction is being followed when you aren’t measuring any results. Further, Vern noted that the original focus seemed to be on market research, to get contracting officers to perform better market research by actually communicating with the industrial base. That is a different emphasis than having COs perform better communications (and/or discussions) with bidders during the solicitation and evaluation phase of a procurement. (More on this point in a bit.)
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He also noted that there are many good and valid reasons why a contracting officer would be reluctant to have open communication with industry.
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First and foremost among those reasons was a lack of time. Vern stated (and we agree) that the majority of COs are overworked and stressed with the intricacies of making the broken Federal acquisition system work. They simply do not have time to meet with and/or chat with every potential bidder. They don’t have time to explain the basics of Federal procurement to companies that want to enter the Federal marketplace, but don’t know how. (Plus that’s not their job, anyway.) Lack of time and an overwhelming workload keep most COs from communicating with industry.
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The current acquisition system is rife with lawyers scrutinizing every step of an acquisition. There are internal lawyers as well as external lawyers. Every one of them is looking to criticize a CO’s decisions. Every disappointed bidder is looking to find grounds for a protest. In such an environment, everything a CO says can and will be used against them. Vern pointed to the published answers to questions submitted by potential bidders after reading solicitations as a good example of how COs and lawyers act together to say as little as possible in order to minimize grounds for a bid protest. Much better, in Vern’s view, to say the minimum required and avoid legal entanglements.
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COs are afraid of misleading bidders. According to Vern, requirements are changing at a furious rate throughout the acquisition cycle, often right up to the issuance of a formal solicitation. Vern invited me to look at FedBizOpps and see all the solicitation amendments, changing requirements after issuance of the solicitation and right up to the proposal deadlines. Vern noted that COs are afraid that what they say will be “overcome by events” and might end up being grounds for a bid protest.
We both agreed that the recent proposed FAR revision perpetuates the problems with the Dan Gordon OFPP Memo and does nothing to address the points raised above. In addition, Vern noted some real concerns with the proposed rule. For clarity, let’s quote the proposed FAR verbiage:
The Government must not hesitate to communicate with the commercial sector as early as possible in the acquisition cycle to help the Government determine the capabilities available in the commercial marketplace. Government acquisition personnel are permitted and encouraged to engage in responsible and constructive exchanges with industry as part of market research (see 10.002), so long as those exchanges are consistent with existing laws, regulations, and promote a fair competitive environment.
Vern noted that the term “communicate” has a very specific meaning in the FAR (see 15.306), which is—“communications are exchanges, between the Government and offerors, after receipt of proposals, leading to establishment of the competitive range.” Is that what is meant by the proposed revision to FAR 1.102-2? Neither Vern nor I thought so, yet that is what the rule-drafters came up with. They are supposed to know this stuff, but apparently they didn’t see any issues with using a very specific term of art in a different manner elsewhere in the FAR. And they can’t blame Congress for the misstep, because Congress used the correct term (“exchanges”) in the 2016 NDAA. It’s just bad rule-making.
Another potential problem in the proposed rule is the use of the phrases “the commercial sector” and “the commercial marketplace”. Those phrases might be interpreted to mean that the direction only applies to acquisitions of commercial items, rather than to a basic business practice that applies to all acquisitions. This possible interpretation is reinforced by the fact that the proposed revision also adds some language just after the part we quoted above—“The Government will maximize its use of commercial products and services in meeting Government requirements.” Truly, when you add both parts of the proposed rule together it would be entirely reasonable to interpret the new “performance standards” to apply only to acquisitions of commercial items. Neither Vern nor I thought that was the intent of the rule-drafters. Again: bad rule-making.
In addition, the proposed rule suffers from all the defects of the Dan Gordon OFPP Memo. It lacks any way to measure compliance. Because there’s no means of measuring compliance, there’s no accountability for non-compliance. Speaking only for Apogee Consulting, Inc. (and not for Vern), we lack any confidence that COs will change the habits of a lifetime when there is no “stick” to be applied for continuing with the status quo. This is especially true given the impediments to open communication cited by Vern, above. The proposed FAR rule is window-dressing; nothing more.
The proposed rule also suffers from vagueness. Where in the acquisition cycle is it supposed to apply? As noted above, Vern thought the original Gordon Memo applied to market research and not to exchanges with offerors before or after issuance of a solicitation. The same lack of specificity is found in this proposed rule.
And the rule-drafters seem to openly acknowledge the aimlessness of the rule. In Section III of the Federal Register notice, the following language is found—
The Councils specifically request information regarding the following:
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Which phase(s) of the Federal acquisition process—i.e., acquisition planning/market research; solicitation/award; post award—would benefit from more exchanges with industry and what specific policies or procedures would enhance communication during these phases?
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Is there a current FAR policy that may inhibit communication? If so, what is the policy, and how could this policy be revised to remove barriers to effective communication?
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Might it be beneficial to encourage, or require, contracting officers to conduct discussions with offerors after establishing the competitive range for contracts of a high dollar threshold? If so, what would be the appropriate dollar threshold?
Thus, the rule-drafters are quite open about the vagueness of the proposed rule and they are asking for public input to help them out. As always, you can submit comments and suggestions, and perhaps this time the rule-makers might actually listen. It could happen!
Here’s another link to the Federal Register notice. If you want to submit comments, follow the link and you can find all the details, including deadlines.
Finally, we want to wrap up this article the way we originally intended to wrap up the prior article. We wanted to offer a word of advice to individuals and companies who believe that COs need to talk more.
Don’t.
Vern and I agreed that there are basically two types of folks who want to bend a CO’s ear: (1) people who know their way around and have a very specific question or issue that they’d like to resolve informally, without going through the disputes route, and (2) people without a clue (PWACs). PWACS don’t know what they want, they don’t know what the COs can do for them, and they have some strange notion that building a relationship with an individual CO can somehow help them win government work. They don’t have any agenda; instead, they want to meet in person and get a primer on Government Contracting 101.
If you are a PWAC, then don’t. It’s a waste of the CO’s time and it’s a waste of your time. If you want a primer, go attend a seminar. Hire a consultant. Visit your local PTAC. (And if you don’t know what a PTAC is, that’s prima facie evidence that you are a PWAC.) Attend local industry days sponsored by your local Executive Branch agency and/or military base. Identify the local SBLO and find out about interested bidders’ lists. Register in the appropriate databases. In other words, there are many more effective ways of positioning yourself to win Federal business than meeting with an individual CO in order to build a relationship. (By the way, if the CO used any relationship to steer work your way, that would be a very big problem for the CO and, perhaps, for you as well.)
So don’t.
Thanks again to Vern for the typically trenchant discussion. You need to know that we didn’t solicit his input. We sent him our original blog article because I thought he’d be interested. He was. He was so interested that he called me the next day and spent nearly 30 minutes discussing the issues. That’s the level of his dedication to this field. I hope I represented his thoughts accurately. Any errors are mine.
We Should Talk More
Long ago (but not in a galaxy far, far, away) we wrote about an OFPP initiative to get government contracting officers to communicate with industry. The OFPP, for those who may not know, is a small niche office within the White House’s Office of Management and Budget (OMB). Allegedly, it plays a “central role in shaping the policies and practices federal agencies use to acquire the goods and services they need to carry out their responsibilities.”
Why do we say “allegedly”? Hang on for a sec; we’ll get to that in a moment.
In that prior article, we discussed OFPP’s publication of an Executive Memo from then-OFPP Administrator Dan Gordon. (Mr. Gordon was replaced by Mr. Jordan who was replaced by Ms. Rung, for those keeping score.) Mr. Gordon’s Memo required each Executive branch agency to develop a “vendor communication plan” to address “how the agency will reduce unnecessary barriers, publicize communication opportunities, and prioritize engagement opportunities for high-risk, complex programs or those that fail to attract new vendors during re-competitions.” Mr. Gordon emphasized the importance of vendor communications by attaching a “mythbuster” memo that “busted” commonly held “misperceptions” about barriers that might impede government folk from, you know, talking with potential suppliers.
We ended our prior article with the following: “Whether it’s auditors talking to those they audit or contracting officers talking to bidders, communication is a good thing. And that is the official policy of the U.S. Government.”
But the OFPP memo and the policy emphasis and the long-winded mythbusting letter seemingly failed to change anything, at least as Congress saw things. Despite the official role of the OFPP and the alleged power it had to set acquisition policy, nothing changed. Or at least, not enough changed. Congress waited for a while and then determined that the status remained an unfortunate quo. So it decided to make a public law, as it is empowered to do by the U.S. Constitution.
Congress enacted a bill (HR 1735, the National Defense Authorization Act for 2016). In that bill, Section 887 required that –
Not later than 180 days after the date of the enactment of this Act, the Federal Acquisition Regulatory Council shall prescribe a regulation making clear that agency acquisition personnel are permitted and encouraged to engage in responsible and constructive exchanges with industry, so long as those exchanges are consistent with existing law and regulation and do not promote an unfair competitive advantage to particular firms.
And then President Obama vetoed the bill.
And then it was revised and resubmitted, and it finally became a Public Law. We think. Because Bob Antonio at WIFCON doesn’t have a P.L. number associated with it, which is unusual. Could be an oversight. Probably is. But maybe not. He usually doesn’t make that kind of oversight.
Regardless of the murkiness of the legal status of the 2016 NDAA, the Section 887 language quoted above is being used as the basis of a proposed FAR revision that would clarify “that agency acquisition personnel are permitted and encouraged to engage in responsible and constructive exchanges with industry.”
Maybe that is going to be a newsflash to some government contracting officers.
So why does the FAR need to be revised?
Because the Dan Gordon mythbusting memo was ineffective. Because the Executive branch agencies (apparently) ignored it. Because they (apparently) never developed any required vendor communications plans. Or, if they did all the things they were told to do, then Congress (and/or suppliers) never noticed anything had changed. But we think the most likely explanation is that all those Executive branch agencies basically just ignored the OFPP Administrator’s Memo.
Why did they ignore it? Why did they feel free to ignore Mr. Gordon’s Memo?
Maybe because it’s a high-turnover position, and those agencies might have thought that the next OFPP Administrator was going to bring in a different set of priorities. And so they would never be held accountable for ignoring the direction they had received from the previous Administrator. To be clear: we don’t know that this is the case; but we strongly suspect it is.
Their plan to ignore the Memo seems to have worked to some extent. They might have gotten away with it, too—except for those meddling Congress critters.
So here we are with FAR Case 2016-005 that proposes to amend FAR 1.102-2(a)(4) “to specifically state that Government acquisition personnel are permitted and encouraged to engage in responsible and constructive exchanges with industry, so long as those exchanges are consistent with existing laws and regulations, and promote a fair competitive environment.”
As with all proposed rules, you may submit a comment if you would like to. The contact info is in the link to the Federal Register notice (above).
But we pretty much think we’ve said all that needs to be said on the topic. If an Executive Memo from the OFPP Administrator won’t get contracting officers communicating with industry, there is no reason to suspect that a FAR revision will. It will be nice to have, of course. And contractors will point to it when they whine that they are not getting their fair share of the public trough. But nothing is really going to change.
And yet Congress will continue to try to do something, because everybody knows it’s too hard to enter into the defense marketplace. (See our many articles on that topic for details.)
Meanwhile, OFPP Administrator Rung, who brought into vogue the notion of “category management” as an important Federal acquisition priority, has left the OFPP to join Amazon, according to reports. Her replacement has not yet been named. It seems likely that the position will go unfilled until incoming President-elect Trump names his nominee.
It will be interesting to see what the next OFPP Administrator’s priorities will be, and whether anybody will actually, you know, care.
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