Acquisition reform plays key role in Pentagon's cost savings
July 16, 2010
WASHINGTON (July 15, 2010) -- The Defense Department has the opportunity to save billions of taxpayer dollars through acquisitions reform, but only if it grows its workforce with the right federal workers in place to oversee contracts, a senior Pentagon official said today.
"There is a significant opportunity to save billions of dollars, but only if we have a well-trained and sufficient workforce," Shay Assad, the acting director of the department's procurement and acquisition policy, said during a Senate Budget Committee hearing.
Assad called acquisitions reform and improved efficiencies a top priority of Defense Secretary Robert M. Gates, with a goal of $100 billion in savings over five years, starting in fiscal 2012. He said the secretary ordered his staff to consider two questions with regard to old-style contracting procedures: Is this respectful of the American taxpayer at a time of economic and fiscal duress' And, is this the best use of limited dollars'
With cost savings derived from better efficiencies, Assad said, department officials hope to attain 2 to 3 percent net growth in warfighting capabilities without a mirrored budget increase.
Earlier this month, Ashton Carter, undersecretary of defense for logistics, "directed all echelons of the department to take a hard look" at ways to cut costs, Assad said. Carter's directive, he said, "really was about increasing the buying power of the department and in getting a better deal for taxpayers."
"We need to examine not only what we acquiring, but how we are acquiring it," Assad added.
The department procured three million contracts in fiscal 2009, amounting to $375 billion, Assad said. It spent $372 billion in contracts last year, he said. About 53 percent of those costs, he said, go to contracted services, while 47 percent go to products, such as equipment.
Overall, the entire federal government, including defense, spent $560 billion in fiscal 2009, according to Daniel I. Gordon, administrator of federal procurement policy in the White House's Office of Management and Budget, who testified alongside Assad. That compares to $535 billion the government spent in fiscal 2008, Gordon said, adding that this year's amount would have been much larger without major cost-cutting initiatives.
Agencies are now pooling their purchases, using more fixed-price contracts, having Internet-based "reverse auctions" for contracts, and paying more attention to contract management, Gordon said. The result, he said, is a drop in annual contract growth that averaged 12 percent every year between 2001 and 2008, to an average of 4 percent since then.
During that time, Gordon said, there was no expansion of the federal workforce to oversee the "tsunami" of contracts coming through. Over the next several years, the Obama administration is investing in hiring thousands of new federal procurement officers, the "lifeblood" of acquisition reform, he said.
To improve the procurement of services, Assad said, the defense department also must expand competition, move away from longstanding "incumbent" contractors, ensure that work statements are understood, and use proper contracts.
With regard to weapons systems, Assad said, "It's all about properly defining the requirements." Contractors now are "spending a lot of time up front" to ensure that contracts are realistic to avoid future add-on costs, he said.
In the past, defense procurement officials spent too much time measuring processes rather than outcomes, Assad said. And that, he said, is where expanding the workforce with highly trained acquisition professionals comes in.
The Pentagon plans to add 20,000 federal procurement workers over the next five years, Assad said. Among other things, he said, the additional workers are needed to properly oversee contracts "from an arm's length."
The department is making good progress, having already hired 4,600 acquisitions and procurement workers, Assad said. Many of the workers, he said, are former servicemembers who'd used the equipment and services they will now help to procure.