November 20, 2012

DoD’s “Better Buying Power 2.0:” More Flexibility in Contract Formation

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A recently issued memorandum from the Department of Defense (“DoD”) promises changes to the formation and administration of defense contracts. This could be good news for contractors. The memorandum instructs DoD acquisition officials to be more flexible in the types of contracts awarded by the DoD, and it recognizes that a best-value acquisition requires a balance of quality and price.

On November 13, 2012, Frank Kendall, Under Secretary of Defense for Acquisition, Technology and Logistics, issued a memorandum to DoD’s acquisition workforce. The memorandum, titled “Better Buying Power 2.0: Continuing the Pursuit for Greater Efficiency and Productivity in Defense Spending,” outlines thirty-six initiatives in seven focus areas, each aimed at increasing DoD’s and industry’s efficiency. This “BBP 2.0” memorandum is preliminary and will be finalized in January 2013.

BBP 2.0 follows more than two years after DoD’s original release of “Better Buying Power: Guidance for Obtaining Greater Efficiency and Productivity in Defense Spending.” By comparison, the “BBP 1.0” memorandum contains twenty-three initiatives in five focus areas.

As described in the chart below, most of the initiatives begun under BBP 1.0 will be continued under BBP 2.0. However, the new memorandum departs from BBP 1.0 in two significant respects. Industry, and in particular a recent letter from the Professional Services Council, has likely had some influence on these changes.

First, BBP 2.0 adds an entirely new area of emphasis: improving the professionalism of the DoD acquisition workforce. According to Under Secretary Kendall, the aim is to provide “a deeper bench” of officials qualified to handle the complexities of major acquisition programs.

Second, BBP 2.0 retreats from the rigid rules of BBP 1.0 related to contract formation. BBP 1.0 emphasized the use of Fixed-Price Incentive Firm Target (FPIF) contracts, even going so far as to mandate the use whenever possible of a 50/50 share line and 120% ceiling. In contrast, BBP 2.0 is more flexible, instructing officials to “[e]mploy appropriate contract types.” Similarly, BBP 1.0 mandated that acquisition officials tie profit margins to the risk of subcontractor performance. BBP 2.0 takes a broader view, requiring instead that DoD “[a]lign profitability more tightly with Department goals.” Finally, BBP 2.0 takes steps to correct DoD’s recent trend of equating cheapest with best value. BBP 2.0 requires acquisition officials to “[b]etter define value in ‘best value’ competitions” and, when a Lowest Price, Technically Acceptable procurement is used, “to define [Technically Acceptable] appropriately to ensure adequate quality.”

Contractors interested in commenting on BBP 2.0 should do so soon. DoD’s two-month period “for review and comment by stakeholders in industry and government” ends on or about January 13, 2013.

A full comparison of BBP 1.0 and the preliminary BBP 2.0 is found below:

BBP 1.0 Headings & Initiatives	BBP 2.0 Headings & Initiatives	Comments
Target Affordability and Control Cost Growth	Achieve Affordable Programs
Mandate affordability as a requirement	Mandate affordability as a requirement	This is a continuation of the BBP 1.0 initiative.
Make production rates economical and hold them stable	Institute a system of investment planning to derive affordability caps	This BBP 2.0 initiative is a means of implementing the affordability requirement.
	Enforce affordability caps	This BBP 2.0 initiative is a means of implementing the affordability requirement.
Set shorter program timelines and manage to them		No new instruction in BBP 2.0, though BBP 2.0 does emphasize under a different heading that cycle times should be reduced.
Target Affordability and Control Cost Growth	Control Costs Throughout the Product Lifecycle
Eliminate redundancy within warfighter portfolios	Eliminate redundancy within warfighter portfolios	This is a continuation of the BBP 1.0 initiative.
Drive productivity growth through Will Cost/Should Cost management	Implement “should cost” based management	This is a continuation of the BBP 1.0 initiative.
	Build stronger partnerships with the requirements community to control costs	This initiative is part of the continuing push in BBP 1.0 to drive productivity growth.
	Institute a system to measure the cost performance of programs and institutions and to assess the effectiveness of acquisition policies	This is a new initiative.
	Increase the incorporation of defense exportability features in initial designs	This is a new initiative.
Incentivize Productivity & Innovation in Industry	Incentivize Productivity & Innovation in Industry and Government
Reward contractors for successful supply chain and indirect expense management	Align profitability more tightly with Department goals	The five BBP 2.0 initiatives to the left comprise adjustments to BBP 1.0’s initial actions related to contract types and contractor incentives.
Increase the use of FPIF contract type where appropriate using a 50/50 share line and 120 percent ceiling as a point of departure	Employ appropriate contract types	"
Adjust progress payments to incentivize performance	Increase use of Fixed Price Incentive contracts in Low Rate Initial Production	"
	Better define value in “best value” competitions	"
	When LPTA is used, define Technically Acceptable to ensure needed quality	"
Reinvigorate industry’s independent research and development and protect the defense technology base	Expand programs to leverage industry’s IR&D	This is a continuation of the BBP 1.0 initiative.
Extend the Navy’s Preferred Supplier Program to a DoD-wide pilot	Institute a superior supplier incentive program	This is a continuation of the BBP 1.0 initiative.
	Increase effective use of Performance-Based Logistics	This is a new initiative.
	Reduce backlog of DCAA Audits without compromising effectiveness	This is a new initiative.
Promote Real Competition	Promote Effective Competition
Present a competitive strategy at each program milestone	Emphasizing competition strategies and creating and maintaining competitive environments	This is a continuation of the BBP 1.0 initiatives to present a competitive strategy and remove obstacles to competition.
Remove obstacles to competition		"
Require open systems architecture and set rules for acquisition of individual data rights	Enforce open system architectures and effectively manage technical data rights	This is a continuation of the BBP 1.0 initiative.
Increase dynamic small business role in defense marketplace competition	Increase small business roles and opportunities	This is a continuation of the BBP 1.0 initiative.
	Use the Technology Development phase for true risk reduction	This is a new initiative.
Improve Tradecraft in Services Acquisition	Improve Tradecraft in Acquisition of Services
Create a senior manager for acquisition of services in each component, following the Air Force’s example	Assign senior managers for acquisition of services	This is a continuation of the BBP 1.0 initiative.
Adopt uniform taxonomy for different types of services	Adopt uniform services market segmentation	This is a continuation of the BBP 1.0 initiative.
Address causes of poor tradecraft in services acquisition	Improve requirements definition; prevent requirements creep	This is a continuation of the BBP 1.0 initiative.
Increase small business participation in providing services	Increase small business participation	This is a continuation of the BBP 1.0 initiative.
	Increase use of market research	This is a new initiative.
	Strengthen contract management outside the normal acquisition chain — installations, etc.	This is a new initiative.
	Expand use of requirements review boards and tripwires	This is a new initiative.
Reduce Non-Productive Processes and Bureaucracy	Eliminate Unproductive Processes and Bureaucracy
Reduce the number of OSD-level reviews	Reduce frequency of OSD-level reviews	This is a continuation of the BBP 1.0 initiative.
Eliminate low-value-added statutory processes	Eliminate requirements imposed on industry where costs outweigh benefits	This is a continuation of the BBP 1.0 initiatives to eliminate low- and non-value-added statutory processes and overhead.
Reduce non-value-added overhead imposed on industry		"
Align DCMA and DCAA processes to ensure work is complementary		No new instruction in BBP 2.0.
Increase use of Forward Pricing Rate Recommendations (FPRRs) to reduce administrative costs		No new instruction in BBP 2.0.
Reduce by half the volume and cost of internal and congressional reports		No new instruction in BBP 2.0.
	Reduce cycle times while ensuring sound investment decisions	This is a new initiative.
	Re-emphasize AE, PEO, and PM responsibility and accountability	This is a new initiative.
	Improve the Professionalism of the Total Acquisition Workforce
	Establish higher standards for key leadership positions; establish stronger professional requirements for all acquisition specialties	This is a new initiative.
	Increase the recognition of excellence in acquisition management	This is a new initiative.
	Continue to increase the cost consciousness of the acquisition workforce — change the culture	This is a new initiative.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Attorney Advertising.