Pentagon sees competition declining in defense contracting, and orders remedies

Monday - 8/25/2014, 3:22pm EDT

The percentage of Defense Department contract dollars the Pentagon awards via competitive bids has been falling every year since 2008. And its self-imposed goals for contract competition, in place since 2010, have been missed every year since then.

Undersecretary of Defense for acquisition, technology and logistics Frank Kendall, who frequently reminds the acquisition community that competition is the department's single best tool for getting better prices, is not happy about this. So he's ordering a new round of policy changes and new guidelines designed to boost DoD's competition numbers.

Frank Kendall, Undersecretary of Defense for acquisition, technology and logistics (DoD photo)

For example, even though contracting officers already have to justify their decisions on paper when they decide to make a sole-source award, they'll now have to prove they've scoured the marketplace for potential second bidders by first publicizing a request for information and then publishing the results in their decision to go with a noncompetitive contract.

Also, the department is trying to address what it perceives as a gap in safeguards designed to make sure the same contract isn't awarded as sole-source over and over again. When contracting officers write up a "justification and approval" (J&A) document for a noncompetitive solicitation, they're already required to lay out plans to make sure there's competition in the next round. But as of now no mechanism is in place to determine whether they followed through with those plans. So going forward, any time a military department or Defense agency wants to buy a product or service as sole-source more than once, the second J&A will need to explain why the plan for more competition didn't pan out, and will need the sign-off an acquisition official at least one level higher in the chain of command.

Kendall announced the changes and several others in a memo DoD distributed to defense leaders on Friday. On the same day, Kendall's office published a new 24-page book of guidelines for building competitive acquisition strategies within DoD.

"Given the declining trend in competition in the department and in light of today's limited resources, we must maximize our use of direct and indirect competition. Every dollar saved through competition benefits the warfighter and the taxpayers," Kendall wrote. "The aforementioned guidance and requirements will be incorporated in the Defense Acquisition Guidebook and Defense Federal Acquisition Regulation Supplement."

For now, the book of guidelines DoD published Friday generally shies away from prescriptive language, and instead, offers best practices for fostering competition and highlights examples of defense programs that have managed to do so in the past, even in cases where there was no direct head-to-head competition.

For instance, the guidelines urge several ways to prevent managers from getting their programs locked into a single vendor, including by embracing an open systems architecture wherever possible so that they can continue to conduct ongoing competitions at the level of individual components. It also admonishes managers to come up with a well-thought-strategy for making sure the government owns just enough of the program's intellectual property so that it can maintain a competitive environment, but doesn't demand so much otherwise-proprietary data that vendors shy away from bidding.

Among other changes in Kendall's memo:

  • In situations where DoD sets up a theoretically competitive solicitation process but only one company makes an offer, the contracting officer will have to ask other would-be bidders why they decided not to participate. The department plans to use that feedback to drive competition strategies in the future.

  • The Business Senior Integration Group, a panel of high-level DoD officials that manages the implementation of the department's Better Buying Power initiative, will address competition at its meetings every quarter. The group also plans to roll out "business intelligence tools" to find areas of DoD contracting that are ripe for improvement.

In its June report on the performance of the Defense acquisition system, Kendall's office acknowledged that an overall decline in DoD contract dollars is one significant factor behind the decrease in competitive contracts. But competition has seen a steady decline since well before the Pentagon began to see serious budget challenges.

In 2008, DoD awarded 64 percent of its contract dollars via procurements that had more than one bidder. That figure has declined by a percentage point or more every year since, dropping to 57 percent in 2013. Preliminary data for 2014 indicate the trend is continuing: statistics through July 31 show DoD made competitive awards on 56.5 percent of its contract dollars in the third quarter of fiscal 2014.

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