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

by Holland & Knight LLP

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. 


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.

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