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The Current State of Defense Contracting

The contract management process continues to be an increasingly important function in the federal government, and specifically in the Department of Defense (DoD). The DoD, which is the federal government’s largest contracting agency, continues to increase its level of public spending for goods and services. For example, between fiscal years 2000 and 2010, the DoD’s obligations on contracts have more than doubled to over $370 billion. Even though the defense procurement budget has increased substantially, the procurement workforce has remained the same size since 2001. Prior to 2001, from 1989 to 2000, the defense procurement workforce was downsized by nearly 50 percent.

The combination of an increased procurement budget and a downsized procurement workforce, along with the complexities of an arcane and convoluted government contracting process, have created the perfect storm—an environment in which complying with government contracting policies and adopting contract management best practices has not always been feasible. The Government Accountability Office (GAO) and the DoD Inspector General (DoD IG) have consistently reported on DoD’s contracting deficiencies. Between 2001 and 2009, the GAO issued 16 reports related to trends, challenges, and deficiencies in defense contracting. During that same time period, the DoD IG issued 142 reports on deficiencies in the DoD acquisition and contract administration processes. These reports have identified poor contract planning, insufficient contract administration, and lack of contractor oversight as just some of the critically deficient areas in DoD contract management. Because of these deficiencies, the GAO has identified contract management as a “high risk” area for the federal government since 1990 and continues to identify it as high risk today.

The contracting deficiencies identified in the GAO and DoD IG reports can also be characterized by terms or phrases I frequently use in teaching my MBA contracting courses. One term, “policy without practice,” which has been used in GAO reports refers to the culture in which the federal agencies as well as DoD agencies, either intentionally or unintentionally, do not comply with contracting policies such as providing for full and open competition, conducting adequate market research during procurement planning, obtaining fair and reasonable prices, and providing adequate contractor surveillance.

Another term I use in the classroom comes from one of the textbooks I use in my courses, The Responsible Contract Manager by Steven Cohen and William Eimicke. Cohen and Eimicke use the term “corruption by incompetence” to describe the environment in which government agencies are increasing their contracting activities, without a corresponding increase in staffing and training for proper contract management. I specifically discuss “corruption by incompetence” in referring to senior government officials (officials above the contracting officer level) who make contracting-related decisions without the appropriate level of contracting skill or knowledge and without seeking input or counsel from competent contracting officers. I agree with Cohen and Eimicke that this is a dereliction of duty, a violation of public trust, an abuse of office, and a breach of ethics, on the part of senior government officials.

The most recent term I have started using in my classroom is “acquisition malpractice,” which was coined by Mr. Frank Kendall, Under Secretary of Defense for Acquisition, Technology and Logistics (AT&L), in describing the practice in defense weapon system procurement of beginning production of a major weapon system before the testing and evaluation of that system is complete. I would go further by referring to “acquisition malpractice” to describe other common situations in defense procurement such as starting weapon system engineering/manufacturing development before achieving a high level of technology maturity, building and testing production representative prototypes before achieving a stable and mature design, and starting weapon system production before ensuring manufacturing processes can meet cost, schedule, and quality targets. Procurement best practices reflect following a knowledge-based approach in defense acquisition—that is, ensuring a certain level of knowledge (technology maturity, stable product design, and capable manufacturing process) is obtained at key decision points before proceeding to the next phase of product development. Recent GAO assessments on major defense acquisition programs indicate that the majority of programs are not fully adhering to this knowledge-based approach, putting them at higher risk of cost growth, schedule delays, and of course, acquisition malpractice.

There is much speculation on the reasons for policy without practice, corruption by incompetence, and acquisition malpractice. These reasons include disconnected and unstable DoD processes for determining requirements, planning, programming and budgeting, and acquiring supplies and services. My research has also identified other reasons including competing goals and objectives among the various functional members of the government’s acquisition team, a lack of training of non-contracting senior government officials, and less-than-capable organizational contracting processes.

The DoD has responded to these contracting deficiencies by applying additional emphasis on training its members of the contracting workforce, as opposed to training non-contracting members of the acquisition team, as well as senior government officials. Although there is an emphasis on contracting workforce training (that is, individual competence), there seems to be a lack of emphasis on process capability (that is, organizational processes). Recent assessments of Army, Navy, and Air Force contracting processes using the Contract Management Maturity Model (CMMM) have indicated that, on the average, the process capability for pre-award contracting activities (procurement planning, solicitation planning, solicitation, and source selection) reflect that these processes are not fully developed and integrated with other functional areas such as program management, financial management, or quality assurance. In addition, these processes are not consistently evaluated using performance metrics nor are they continuously improved. Furthermore, on the average, the process capability for the post-award contracting activities (contract administration and contract closeout) reflect that these processes are not sufficiently established and institutionalized within the contracting department, nor are these processes fully integrated throughout the other functional areas of the agency, nor are they measured or continuously improved. Overall, DoD’s contracting processes are typically lacking in areas of process strength, top management support, process integration, and process measurement.

Both individual competence as well as organizational process capability are needed for success in DoD contracting. Perhaps a balanced emphasis on both individual competence and organizational process capability will help to alleviate the problems of policy without practice, corruption by incompetence, and acquisition malpractice in DoD contracting.

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Author: Rene G. Rendon, DBA, CPCM, CFCM, CPSM, C.P.M., PMP, is an associate professor of acquisition management at the U.S. Naval Postgraduate School where he teaches in the MBA programs in acquisition management and contract management. Prior to entering academia, Dr. Rendon spent over twenty years as a contracting officer in the United States Air Force. He can be contacted by email at [email protected] and by telephone at (831) 656-3464. The views expressed in this article are those of the author and do not reflect the official policy or position of the U.S. Navy, Department of Defense, or the U.S. Government.

 

Image courtesy of http://www.govconwire.com/2012/05/report-lockheed-tops-fy-2011-defense-contracting-revenue/.

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One Response to The Current State of Defense Contracting

  1. James L. Vann Reply

    January 22, 2013 at 5:48 pm

    Rene,
    This is an excellent description of a very wicked problem space (and not just for DoD, but federal procurement in general). What you’ve summarized might be captured in a 2X2 matrix: Individual Competence and Process Capabilities on one axis; Pre-award and Post-award activities on the other. As such, I would argue the biggest deficiency is in the Post-Award, Process Capability quadrant, where Donald F. Kettl’s smart buyer question “What was bought?” so often goes unanswered. Recent policy emphasis on Contracting Officer Representative (COR) training is a step in the right direction, but until performance monitoring processes are better institutionalized for CORs and technical experts, we simply won’t know what we bought … or how to buy it better next time.

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