Defense Department’s Assault On Commercial Item Pricing Could Undermine BBP 3.0

Under Secretary of Defense for Acquisition, Technology & Logistics (AT&L), Frank Kendall, is set to unveil the new and improved 3.0 version of the department’s Better Buying Power (BBP) initiative this Friday. The primary objective of BBP 3.0 is to encourage greater competition and more innovation from defense industry. Nothing is more critical to the future of the U.S. military than the ability to bring more players into the acquisition process, particularly commercial companies that have not done a lot of business with the Pentagon, and to encourage both long-time defense companies and new players to stretch themselves and bring new or reconfigured products into the system.

However, even before BBP 3.0 is released, its goals are under assault. By whom? Why the same organization, AT&L, that promulgated the strategy.

For several years now, the department has been trying to gain greater insight into and, ultimately, control over the prices it is charged for commercial items. This includes big and costly items such as jet engines or aircraft spare parts, as well as more common products like cold weather gear. Mind you that by definition, these are items that were developed entirely by private companies using their own funds and often contain valuable proprietary intellectual property.

For decades, the Department of Defense purchased these items based largely on the way any other buyer would; they asked the vendor for a price and then decided whether this was a good deal. Now the government wants these companies to provide certified cost and pricing data on these items. This means that the companies will be required to prove both that none of their suppliers charged them more than they did any other buyer, but also that nobody anywhere in the world is getting a better price for their product. As if that were not in itself a big deal, particularly for global companies that buy and sell around the world, most of them have never collected this kind of information and for good reason. To do so would encumber the supply chain, slow down the flow of goods and services and add costs.

In a recent article for National Defense, long-time defense beat reporter Sandra Erwin describes what AT&L wants to do and provides compelling reasons why this is a bad idea. Chief among these is that it would encourage companies with significant commercial business, particularly those that sell the Pentagon lots of commercial items, to limit future defense competitions, discourage new commercial entrants into the defense marketplace, reduce innovation and increase acquisition costs. This is contrary to everything BBP 3.0 is trying to achieve.

The Pentagon wants to be the one to establish what is a reasonable price. But it is not unreasonable to conclude that the effort to demand what it calls “fair pricing” from commercial vendors is actually an attempt to extort concessionary prices from them.

At a time in which the Pentagon is becoming increasingly dependent on commercial companies to provide cutting edge systems and products and needs every new entrant into the defense market it can get, it is the height of folly for the government to impose on them a new cost and pricing scheme that is unfair, counterproductive and ultimately self-defeating.