When the moon hits your eye like a big pizza pie, that’s acquisition! Well, not quite, but acquisition is undoubtedly a critical element for any defense company’s business strategy. And understanding this process is all the more important in light of Secretary Carter’s new wave of initiatives.
Let me start off by saying that I’m a big supporter of the Carter procurement doctrine. Mr. Carter is a thoughtful planner, and his approach to DoD contracting is measured, logical and innovative. For instance, his Will Cost/Should Cost take on program funding is the very model of logic, yet for one reason or another, it has taken the Pentagon over half a century to get there.
The one question I’m continually getting from clients is the one I intend to answer today: How will this new procurement paradigm affect my company? Well, the short answer is that, so long as you keep your program on schedule and within budget, it shouldn’t impact your company — at least not too much. But, of course, the long answer is much more complicated than this.
Without getting too geeky, let’s look at a few key parts of the Carter Doctrine and how they’ll affect defense contracting.
It’s no surprise that cost-effectiveness is a number one concern for Mr. Carter, but this doesn’t mean that contractors need to get exasperated. What DoD will be looking for now is less “whiz-bang” and more “Geez, we really do need this.”
This means that your system’s Key Performance Parameter (KPP) value must be relative to its price point. This seems like a no-brainer, right? But now more than ever, DoD will be asking whether your new widget is a revolution that the military can’t possibly do without or it is simply version 2.1.1. If it’s the latter, you’re going to find it a much tougher sell: This isn’t an iTunes update.
Think about how your program will fit into the bigger picture and whether it’s going to be critical to this conflict or the next. Also, consider offering additional functionalities beyond the core mission spec. This might not be the decisive factor in having your system chosen, but it will definitely ingratiate you with the harried Program Manager who’s looking to keep his program sold.
The second area that the Carter memo singled out for attention was supply chain and expense management. This is one initiative that I personally think is long overdue. It’s also one that has a huge potential to positively shape defense contracting for a long time to come.
The point of incentivizing productivity and innovation is to reward contractors who demonstrate successful supply chain and expense management, and to penalize those who don’t.
Without going into too much detail, funding is currently broken down into three equally important areas: the work the prime contractor itself performs, work that is subcontracted out and overhead/administrative costs. What Mr. Carter is attempting here is to align each stage’s profit margin with the requisite risk it entails. He’s striving to remove one-size-fits-all profit arrangements and to ensure that each contractor and component maker in the process is equally — or at least fairly — compensated.
As a prime contractor, it’s going to be critical from this point forward to highlight management capabilities at every stage of procurement and stakeholder engagement. This means that from proposal to advertising, organizational skills will be every bit as important as technical prowess.
For subcontractors, this means you ought to make components known to everyone who’ll listen. Make sure that you have media and publicity clauses in subcontract agreements and look beyond traditional audiences to tell your story. If you’re going to make the leap from sub to prime, DoD will have to know you and be comfortable with your expertise.
Promoting Real Competition
Competitive programs are critical to innovation, cost-effectiveness and, importantly, credibility. It’s only through a truly open process that companies are encouraged and often forced to up their game and develop cutting-edge technology.
The cry from industry has been that further competition will drive profit margins down, as well as reduce the overall quality of the final product by forcing contractors to use cheaper components.
To me, both of these arguments are non-starters.
Let me address the first concern. To make the case that competition is bad for any industry is as shortsighted as it is naïve. Yes, in the immediate future, competition may indeed reduce profit margins, but overall, history has taught us that competition is not only good for the customer, but also for the industry. We need only to look to the commercial sector to see this theory play out (think DVD players, smartphones or even the car market). DoD and Congress will be much more likely to approve a program that they know is the real deal, rather than another billion-dollar sole provider upgrade.
In the long term, encouraging a more competitive procurement process will have a number of beneficial side effects. Among these will be less room for protests from losing rivals or from Congress. The other, less tangible effect of the initiative will be that the public will begin seeing DoD acquisition as a credible process. By DoD exhausting all competitive options, the taxpayer will be less inclined to second-guess or doubt a program’s final cost or necessity.
Now, the second part of the argument against competition is that the overall quality of the end product will be affected. To counter this, Secretary Carter has smartly called for contractors to utilize commercial and modular technologies. These will reduce development costs and also ensure that the final product will be adaptable and able to be integrated with new components as they become available.
Contractors owe it to themselves, their shareholders, and most importantly, our soldiers to make these new processes work. It’s easy to stand on the sidelines and find reasons why they won’t. But if — as we like to say — our priority is the warfighter, we should act like it. We need to see these initiatives as what they are: a reining in of a sprawling defense budget, not a personal affront to the defense industry and everyone in it.
These are but a few of the points I’d like to bring up today, but in the interests of brevity, I’ll close here. With this said, I would eagerly continue this conversation with anyone who’s interested. Just drop me a line.
Elliott Suthers, a native of Australia, is a VP at Spector & Associates in New York City. He has worked in government relations for United Nation’s Development Programme in Washington, D.C, and with the Republican National Committee during the 2008 Presidential campaign. Suthers is at Elliott@SpectorPR.com.