Defense Dept. Will Reward Outstanding Contractors The Defense Department plans to phase out time-and-materials contracts and establish a preferred supplier program for top-performing contractors. Those initiatives will help achieve Secretary Robert Gates’s goal of cutting spending on procurement and overhead, said Ashton Carter, undersecretary of defense for acquisition, technology and logistics. Gates has ordered savings of $100 billion over five years, or 2% to 3% of the department’s budget. The savings will be applied to the warfighting budget. “[T]he objective here is productivity and the reduction of unproductive cost,” Carter said at a June 28 briefing. He said time-and-materials contracts “tend to lead to unnecessary cost growth over time.” The department will emphasize increased use of fixed-price contracts. In DOD’s preferred supplier program, Carter said “consistently excellent performance by a contractor will be reflected in special benefits that enhance profit.” He added, “We’re prepared to use profit as an incentive for productivity and affordability.  I can’t make that point enough.  That’s the — that’s the principal leverage we have.” He gave no details about the program. A similar initiative proposed by the Navy would grade contractors on a number of factors including cost, schedule, performance and quality. Top performers would be rewarded with favorable contract terms, but would not receive preference in source selection, according to the Navy’s announcement. (SAA, 5/28)  Carter outlined the initiatives in separate meetings with CEOs of defense contractors and DOD acquisition personnel. He said more specific guidance will follow. In a memo he told acquisitions staff to scrutinize contract terms to make sure that they don’t contain inefficiencies or unneeded overhead. In a May 8 speech outlining his cost-cutting agenda, Secretary Gates said the defense spending “gusher has been turned off.” He projects tiny increases in the department’s budget in the years ahead, and said procurement and overhead must be reduced to meet the needs of warfighters. (SAA, 5/14)