Pentagon arms buyer previews next phase of acquisition reforms

Mon Nov 5, 2012 5:28pm EST

* Pentagon could do "infinitely better" - undersecretary

* Draft of revamped initiative expected Nov. 13

* Department will also review cumbersome acquisition rules

By Andrea Shalal-Esa

WASHINGTON, Nov 5 (Reuters) - The Pentagon's chief weapons buyer mapped out the next phase of a "better buying power" initiative on Mo nday, saying the U.S. military could do "infinitely better" in the way it buys weapons and services.

Frank Kendall, undersecretary for acquisition, technology and logistics, shared key details at a conference hosted by the National Government Contract Management ahead of the formal release of updated acquisition reform guidelines next week.

In addition to updating the "better buying power" initiative first released just over two years ago, Kendall said the Pentagon would also start a year-long review of its current 5000-series acquisition rules, which have grown cumbersome and unwieldy due to piecemeal legislation in recent years.

At the same time, officials would gather more data on the Pentagon's own track record on procurement, Kendall said. He noted an initial review revealed little change in procurement programs over the past 30 years despite repeated reform efforts.

He said new weapons programs generally had cost overruns of 27 to 28 percent, while major weapons programs were often 8 to 9 percent over budget during the early years of production.

Lockheed Martin Corp, Boeing Co, Northrop Grumman Corp, General Dynamics Corp, Raytheon Co and other defense firms are awaiting news on the Pentagon's approach to contracts as they brace for lower defense spending after more than a decade of growth.

In recent years, many of the companies have criticized the Pentagon's war on overhead costs, arguing that government oversight itself sometimes makes weapons more expensive. They have also cited long delays in getting contracts signed.

Kendall said the new acquisition initiatives were developed with input from U.S. weapons makers and service providers, and would actually roll back a few directives in the last version.

He insisted the department wanted to preserve a "healthy, efficient and effective" defense industrial base that was able to generate good profits, but said the sector also needed to be more "lean" in the current austere environment.

The former Raytheon executive said it was important for defense officials to listen to industry's concerns while still maintaining an "arms' length business relationship to ensure that our contracts are executed as intended."

Kendall said a draft version of the changes would be released in coming weeks to allow companies to respond with any concerns or suggestions. One aide to Kendall said the revamped guidelines would be released on Nov. 13.

Kendall said some components of the Pentagon's first "better buying power" drive paid off, but others needed more work, including a big focus on reining in cost overruns on some hundreds of billions of dollars spent on service contracts.

He said the new document would encourage a more differentiated use of various contract types, backing off an earlier directive that resulted in far greater use of fixed price contracts with incentive fees.

Kendall said such contracts were useful early in the production of new weapons, but not while programs were still in development. "There's a balance there," he added.

Key elements of Kendall's "Better Buying Power 2.0" include:

-- a continued drive to assess the long-term cost of weapons programs before they even get started, and keeping costs under control throughout the life of a program

-- assessment of the "productivity" of the Air Force, Navy, Marine Corps agencies that oversee acquisition programs, as well as the private companies that supply weapons and services

-- consideration of possible exports in initial designs of weapons, which could save money in the longer run

-- incentives for companies to perform well on programs and develop new innovations

-- better definition of so-called "best-value" competitions so that contractors understand data before submitting bids

-- creation of a superior supplier program that would reward companies for good performance, perhaps by lowering oversight requirements, or giving them bonus points in future contests

-- greater use of performance-based logistics contracts in which companies provide services and parts as needed

-- a tough review of "unproductive processes," including how joint program requirements are drafted and set

-- a bigger focus on training the Pentagon's cadre of acquisition experts, which has grown by up to 13,000 people in recent years.