Defense bills blur an opportunity

Both the House and Senate Armed Services Committees have now completed work on their respective versions of the fiscal 2012 National Defense Authorization Act. There are more than two dozen significant procurement-related provisions in the bills.

Some provisions raise serious concerns, such as those that establish arbitrary targets for reductions in spending on contracted services; those that create new and ill-defined audit and access to records authorities; or those that urge the Defense Department to pursue a negotiating strategy that would hold contractor labor rates at fiscal 2010 levels.

Others raise more questions than they answer or lack specificity about what they would achieve. Yet others would have a positive effect, particularly those relating to workforce development, prohibiting the implementation of the administration’s draft executive order on political contributions and clarification of the treatment of technical data rights.

But although the legislation focuses a lot on the need to rein in or better manage contractors, neither bill substantively addresses a fiscal issue of growing significance: the weaknesses of DOD’s current processes for determining its own internal costs of performance for making sourcing decisions, despite a significant Center for Strategic and International Studies report released in June, as well as other evidence.

Worse, the Senate version effectively endorses the view that the current DOD guidance for determining its own cost of performance — known as Directive Type Memorandum 09-007 — should remain the standard approach within DOD, even though the comprehensive CSIS study identified substantial weaknesses in the DTM and proposed a more complete taxonomy for determining internal DOD costs.

In addition to codifying the DTM, the Senate version of the defense bill contains several provisions that reduce some service contract spending and freeze service contract spending on program management support at 2010 levels. If these provisions are included in the final authorization bill, DOD will be left with significant implementation challenges. In light of these and other continued pressures on DOD to reduce spending, and in some cases contracted work, an accurate and complete methodology for computing and comparing the costs of performance is essential.

Of course, if some contracted work is simply no longer needed — which would be a natural outgrowth of programmatic funding reductions — then contract spending should decline accordingly. If other contract spending can be reduced through smarter contracting, including better defined requirements or the elimination of non-value-added requirements, that, too, will have beneficial impacts.

But if the work being performed is still needed, the department has to have an analytically rigorous process to ensure that if it reduces contract spending it is not simply shifting those costs to another line. Unless such shifts are justifiable because the work involved really should be done by federal employees, the lack of a well-defined and comprehensive costing process could result in costly, counterproductive decisions.

As David Berteau of CSIS said at the time the center released its report, it is more than a little ironic that even as DOD continues to focus on the costs of contracting, it remains resistant to fully assessing the costs of its own internal operations.

Given the short- and long-term fiscal pressures on DOD, and the ongoing debates about defense funding levels and priorities, this is an opportunity we can ill afford to miss.