DOD increases scrutiny of contractor pricing

New pricing chief Shay Assad says the Defense Department is going to pay more attention to how much it pays for goods and services.

With Carter’s program, DOD concentrates on how much it pays for things it buys. DOD also has to develop its workforce so it has better negotiating knowhow when dealing with a company on a contract’s pricing strategy.

Pricing is going to get special attention from the Defense Department now that Shay Assad has become the director of defense pricing. He's charted with putting the Better Buying Power Initiative into action.

“What we’re trying to do is become world-class buyers,” Assad said. “This is [Ashton] Carter’s way of placing additional emphasis in this area.”

Carter is the under secretary for defense for acquisition, technology, and logistics. Dick Ginman, who worked as a one of Assad’s deputies, will take over Assad's old job as the director for defense procurement and acquisition policy.

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Assad will push ahead Carter’s should-cost guidance by working with program executive officers and program managers to make their Should-Cost targets.

The will-cost/should-cost is an internal acquisition management tool that is geared to better estimate the costs of defense programs and save money. The point is to avoid paying more than initially negotiated, if not paying less.

Carter’s guidance for should-cost analysis includes close scrutiny of every cost of a program and tough negotiations with contractors even if there is only one bidder.

The should-cost guidance also has DOD tracking cost and performance trends and identifying alternatives throughout a program’s cycle that could contribute savings. DOD also has to compare similar programs and other programs from the same contractor.

To become the better buyers, acquisition employees told officials they need help.

“What the workforce told us was is that, we need better skills; we need better tools; we need better training,” Assad said.

To that end, defense officials have plans to help contracting officers better understand the aspects of pricing.

For example, they are building a central repository of pricing data, hosted by the Defense Contract Management Agency. The databases already exist for labor rates and DOD is testing the larger system now to make sure contracting officers can use it.

As the effort progresses in stages, contracting officers will add pricing details into the central database of information, listing the negotiated price and why they settled on that price.

Other DOD contracting officers will have access to that information on what’s been paid in the past for a product or service. Officers will avoid the tedious process of determining whether a price is reasonable. What sometimes took months to determine will be done in minutes, Assad said.

“Simply come online, and the data will be there,” he said.