True Incentives May Be Key to Improving Defense Acquisition

August 5, 2014
By Robert K. Ackerman
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Clearer requirements could open the door to better, faster, less expensive purchases, but sequestration looms as a serious threat.

More specific requirements and better incentives could produce better products at reduced costs, said a leading U.S. Defense Department official. Frank Kendall III, undersecretary of defense for acquisition, technology and logistics, told the keynote audience at AFCEA’s Defense Acquisition Modernization Symposium 2014 that adjusting the contracting process could produce at least some desired results in acquisition.

One such approach would be to provide incentives that would influence contractors significantly, Kendall explained, citing best value contracts. The Defense Department writes requirements by listing both threshold and objective requirements. Many companies just focus on getting to the threshold. Kendall called for giving industry a reason to give the department a better product by defining better value in terms of dollars, which would empower industry to bid above the threshold.

“Incentive contracts work,” Kendall said. “If you can set up meaningful strong incentives, industry will respond.

“Companies that do well should make more money; companies that do poorly should not,” he added. Kendall also called for moving away from lowest price technically acceptable, saying “higher expertise has its price.”

Kendall called for adopting commercial practices where applicable, but he warned that the commercial model does not work all the time. He noted that in the Joint Tactical Radio System program, many companies began to develop their own capabilities on their own investments. Companies then were able to offer the department advanced products they developed.

An appropriate model might be the airline industry, he offered. Companies conduct market analysis and then build what they think their customers would want.

“The commercial model has some utility for us, but it is not a panacea,” Kendall cautioned.

He saved his strongest remarks for the effect that sequestration will have on the U.S. military. “If there is anything that is killing us today, it is the threat of sequestration,” Kendall declared. “I’m living through a nightmare now. The damage is huge.

“We’d better wake up,” he continued. “Our technological superiority is very much at risk. People out there are designing systems to defeat us. We won’t have [technological superiority] going forward if we don’t address it.”

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