If you have an interest in defense, you may have an interest in defense acquisition (and you probably have an interest in the Byzantine Empire as well). 

Like the Byzantine Empire itself, doing business with the Department of Defense is a complex, rule-intensive affair.  As it regards the acquisition of hardware, goods, and services, DoD wants competition between its contractors (it’s good for the customer, that is, DoD) but they also want to limit mergers (even if there is costly excess capacity within the defense industrial base that can be consolidated).  This is one small example of “wanting it both ways” and in an effort to sustain the joys of working with the Pentagon as a customer, perhaps the defense industry would benefit from still more laws and rules.  That always helps things, right?

Evidence of the problematic nature of doing business with the Pentagon, to include why there’s so little true competition for DoD business, is made manifest in this article from Tony Capaccio:

The Pentagon is imposing a new contract provision which calls for withholding as much as 10 percent of payments to defense companies when it finds "significant" shortcomings in any of six business systems used to track performance and cost of weapons programs or services.

First, I’d offer the Pentagon rarely “finds” anything but instead, that said “findings” are in reality self-reported to the Pentagon by the defense companies themselves.  But while this all sounds fair and good (unless the government itself is driving much of the performance deviations; always a possibility), there’s a cost to everything. 

The first cost would be to accurately capture and report costs and to measure those costs against “earned value” standards.  But more significantly, if you’re a less-than-well capitalized small business who has DoD work, you will likely be more challenged when DoD withholds payments than if you’re mega-sized competitors (or more likely, will need mega-sized top cover/”partnering” to begin with).  If you’re a big defense contractor, chances are you have the wherewithal to survive delayed payments.  Chances are…

About 20,000 contractors under the jurisdiction of the Defense Contract Management Agency“ can be subject to withholds provided the clauses are in their contracts and a determination has been made that a system is disapproved,” said agency spokeswoman Jacqueline Noble in an e-mail statement.

 

“System disapproval will be based upon one or more significant deficiencies defined as a ‘shortcoming’ that materially affects the ability” of U.S. officials to rely on the information for management purposes, she said.

 

So… define the terms “shortcoming,” “materially affects,” and “the ability.”

 

There’s a fear that DoD is being taken to the cleaners on many defense programs but I’d offer the pattern of overruns is more closely associated with poor cost estimating on the bid and proposal front-end, perhaps with a knowing DoD wink along the way.  In the end, the overarching principle has to be that DoD’s contractors make a fair profit and that DoD pays a fair price.

 

If you agree with that, all we have to do is define “fair.”

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