COMMENTARY: The Need for a Sound Business Practice

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  Space News Business

COMMENTARY: The Need for a Sound Business Practice

By James Gill

posted: 12 May 2008
11:24 am ET



 

About two years ago, the Government Accountability Office wrote a report that said the U.S. Department of Defense had awarded billions of dollars in incentive and award fees without regard to acquisition outcome. This represented a blanket indictment of the way that the DoD administered award fee contracts. The perception seemed to be that programs in trouble were receiving too favorable fee evaluations.

 

The offshoot of the report was that� policy was issued that directed that award fees were to be tightened, criteria needed to be more objective, rollover was discouraged, and eventually no fee was to be awarded to contracts that did not meet all of the basic (minimum essential) contract requirements.

 

There has been a push in the direction of withholding final fee payment until there has been a demonstration of contract performance. We now have a revised basis for earning fee via ratings from� Unsatisfactory to Outstanding.

 

There is now a specific definition of Good, Excellent and Outstanding. The contractors must meet 50 percent of the award fee criteria to earn a Good rating, 75 percent to earn an Excellent rating and 90 percent to earn an Outstanding rating.

 

This approach leaves some question as to how it will be applied to assessing contract performance as it relates to the acquisition outcome expected. What are these criteria and why is the number met a legitimate determinant as to how much fee they should earn? Are all criteria equal? What if some are more important than others? Should they be weighted in terms of importance? During some periods, some criteria are more important than in other periods. How do you account for this dichotomy?

 

Within the award fee process there is a� need for a certain amount of discretionary judgment. We need to be able to� trust the good judgment of the individuals in whom we entrust the execution of acquisition programs often worth billions of dollars. With this trust should come a level of accountability as well, and if fees are inappropriately awarded, then they must accept responsibility.

 

I have worked many of these programs and without exception I have found that the fee determining officials’ intentions are based upon ensuring that – to quote a former four-star general – “the government receives a quality product on schedule for a reasonable price.”

 

We don’t need to get tougher on contractors. We need to be fair and reasonable and recognize that poor performance should result in reduced profit. If we expect these companies to remain in a high-risk business such as space systems development, we need to make risk and reward commensurate. We need to be competitive with other sectors within the DoD and government sector.

 

The industrial base is shrinking and there are limited numbers of suppliers of space products. We do have concerns for the outsourcing of critical defense technologies and this awareness should reach senior government leadership. The last thing we should want to do is encourage the remaining companies to avoid space acquisitions when looking for the best use for their capital investment and future business opportunities.

 

Space acquisition is moving in the right direction by all accounts, however, we must use sound business strategies when developing plans for future space systems. These plans should offer companies the opportunity to realize a competitive profit when they do well in the business of space. Problem areas within the sector need to be addressed and contractors that do not perform should be held accountable, but not because we want to set examples. The government inadvertently often contributed to the problems of space acquisition by accepting, and perhaps encouraging, unreasonably low program estimates that ultimately resulted in cost overruns and schedule and technical problems.

 

We are “righting the ship” but need to remain committed to ensuring that sound business strategies are in place and that existing programs are being managed professionally. A solid approach to profit practice is a cornerstone in that vein.

James Gill is employed at the Space and Missile Systems Center, Los Angeles Air Force Base. The views represented in this article are soley his own and do not reflect those of the U.S. Air Force.