If DoD Wants More Competition And Lower Costs, Cut The Requirements

The Department of Defense’s effort to improve its acquisition practices and reduce costs is focused intensely on increasing competition. More contracts are being awarded competitively and periods of performance are being shortened to permit more frequent competitions. The Pentagon is seeking to increase the role of competition not only in a new weapons system’s design and development phases, which has been quite common, but also through production. In order to do this, the government generally needs to acquire a technical data package which is a description including all applicable data such as engineering drawings, associated lists, product and process specifications and standards, performance requirements, quality assurance provisions, and packaging details adequate to support acquisition of that item.

It sounds easy but it isn’t. Many platforms and weapons systems rely on propriety knowledge, unique production processes and specialized skills. A number of commercial items that have been imported into the defense environment contain proprietary private intellectual property. The community of defense contractors is relatively small and the barriers to entry are quite high unless the contract involves commercial items or activities. Even then, the regulatory and reporting burden on a company can be such as to dissuade commercial vendors from entering the space. Incumbents on long-standing service and support contracts often have developed the kind of experience and data that a new entrant can only match given sufficient time, meaning longer contract performance periods.

In its pursuit of the Holy Grail of reduced costs through competition, the Pentagon is seeking to level the playing field in ways that are likely in the end to hurt the DoD, the defense industry and the warfighter. One example is the increased use in competitive source selection of a criterion called lowest price technically acceptable. Were this limited just to commodity items or standard commercial practices it might be alright. But this standard is being expanded into areas such as the security of IT systems where minimum technical acceptability is insufficient. Another example is the effort to expand the government’s ability to take (one might even say seize) private companies’ intellectual property, including in some cases knowledge that was developed without any use of defense dollars. A third is to pay the costs of enabling a second source to develop a competing expertise or offering. This was the battle over the alternate engine for the F-35 fighter which DoD sought to, and finally did, kill based on the argument that the costs associated with developing, testing and sustaining a second engine outweighed any gains from reductions in prices due to increased competition.

There is an easier way to make the defense marketplace more congenial to new entrants, allow for more and more frequent competitions and definitely reduce costs. Cut the Requirements. Fewer requirements and less ambitious ones are the surest way to reduce costs. When requirements are reduced this eliminates the need for some technical specifications that add to cost. One of the lessons learned from the rapid acquisition strategies developed to support the warfighter in Iraq and Afghanistan is how fast and, in many cases, cheaply, platforms and systems can be acquired and fielded when requirements are constrained. The Army has been able to encourage greater participation in several of its vehicle programs by cutting down on the requirements. In the case of the replacement for the M-113 armored personnel carrier, the Armored Multipurpose Vehicle, the requirements are reported to be so basic — just a box with wheels or treads — that industry experts believe as many as ten companies could bid.

DoD absolutely should work to increase competition for defense contracts. But it should also recognize that there are a number of hidden costs and other pitfalls that can undermine or at least complicate this effort. Moreover, there comes a time when there are diminishing returns from further increases in competition given the size and nature of the defense market. The same effort and enthusiasm that the Pentagon has invested in increasing competition should be devoted to the relatively untouched area of platform and system requirements.