Superior Suppliers List Belies Myth Of Slow, Unresponsive Overpriced Defense Industry

Two days ago, the U.S. Air Force and Army released their second annual list of aerospace and defense companies that earned the title of superior supplier. The list is the product of the Pentagon’s Superior Supplier Incentive Program that was one of the initiatives called for in the Better Buying Power acquisition reform directive first promulgated by then Under Secretary of Defense for AT&L, Dr. Ashton Carter. The superior suppliers list rates the performance of the top 25 private companies by operating unit based on contract obligations with each of the three military services. The list is based on detailed data derived from the contractor performance assessment reporting system (CPARS) which collects and manages a wide range of relevant measures of company performance including cost reports, quality reviews, technical interchange meetings, financial solvency assessments, construction/production management reviews, contractor operations reviews, functional performance evaluations, and earned contract incentives. Both positive and negative data and comments are included which means that even if a given operating unit does exceptionally well on some programs this will be balanced against programs where performance has been average or even poor.

Being designated a superior supplier is important because it is an indicator of past performance that can impact some current or prospective competitions for contracts. Moreover, it was reported that business units that achieved the highest rating, Tier 1 (of 3), may be invited to meet with military department acquisition leaders to discuss ways in which both parties can streamline administrative burdens. This could impact not only the companies’ bottom lines but also the price they charge the government for goods and services.

What is noteworthy about the overall list is that it included operating divisions from virtually all of the major U.S. defense companies: BAE Systems, Boeing, General Dynamics, L-3 Communications, Lockheed Martin, Northrop Grumman, Raytheon, Rockwell Collins and United Technologies were on the list.  Many of these companies had multiple divisions in the winners’ circle.

The Tier 1 suppliers list was dominated by Lockheed Martin, which had all of its five operating units represented, and BAE Systems. Other Tier 1 players included Boeing’s Commercial Airplanes and Global Services and Support units, Pratt & Whitney, GE Aviation, General Dynamics Aerospace and Rockwell Collins Commercial Systems.

This was not a contest restricted to the giants of the aerospace and defense sector. Several mid-sized companies also made the Tier 1 list. Notable among them were Sierra Nevada Corporation, Harris Corporation, Finmeccanica’s DRS Technologies, SRC Tech and the two halves of what was formerly SAIC.

Several foreign companies or their U.S. subsidiaries also were represented. These included Rolls Royce, Chemring Group PLC and Thales-Raytheon, a joint venture of a French and American company, in addition to DRS Technologies.

In an acquisition environment that has too often of late taken on many of the attributes of a mixed martial arts contest, with government and industry circling each other like two wary fighters, it is important to absorb the implications of the superior suppliers list. According to Heidi Shyu, the Assistant Secretary of the Army for Acquisition, Logistics and Technology “It’s recognition for business units that have been doing a superb job.” So, a number of aerospace and defense companies must be providing good value for the money they receive to make the list, particularly Tier 1. The fact that the winners included a number of the defense primes who lead large teams on complex programs with involved cost and pricing structures is particularly significant. It is even more so given that they did a superb job in a business environment marked by funding uncertainty, changing requirements, increasingly burdensome oversight and a customer with something of a mania for competition and awarding contracts to the lowest cost bidder without considering past performance.

The Department of Defense’s acquisition community also needs to be complemented for inventing the Superior Supplier Incentive Program and seeing it through. It is a way of honoring companies that perform well and incentivizing others to do better. Also, kudos to Defense Procurement and Acquisition Policy which is responsible for running CPARS which provided the data that shows that the government is getting good value for much of the money it spends with private industry.

The superior suppliers list should go a long way to dispelling the myths that private contractors are overpaid, that they inflate their costs, their profit margins are too high and that they never provide anything on schedule and at the agreed-to price. Imagine how much more value these superior suppliers could provide the Pentagon if they had a stable funding environment, firm requirements, sensible oversight and reasonable periods of performance.