Defense Dept.: Small Firms Bring Lower Cost, Innovation The Defense Department is calling for a new emphasis on small businesses as it tries to overhaul acquisition practices so it can “do more without more” in a “new era” of tighter budgets, according to Ashton Carter, undersecretary of defense for acquisition, technology and logistics. Carter outlined the plans in a 23-point directive for acquisition personnel. Defense Secretary Robert Gates said the purpose is “to improve efficiency, boost productivity and reduce costs.” Gates has ordered the department to cut spending on overhead by $100 billion over the next five years, so the savings can be redirected to the warfighter. In his Sept. 14 memo, Carter wrote, “Small business participation on programs has demonstrated lower costs to the government,” while providing “an important degree of agility and innovation.” He ordered that work be set aside for small firms on multiple award contracts and that all buying units seek opportunities to compete multiple award/IDIQ contracts among small businesses. He said contracting officers should give more weight to a prime contractor’s performance in subcontracting with small firms. The new guidance calls for a different way of looking at services contracts, which now account for more than half of DOD’s $400 billion procurement spending. “We don’t even have a standard way of talking about services in the department,” Carter said at a Pentagon briefing Sept. 14. “It’s as though you were buying weapons and you never distinguished planes, ships and tanks. There are a lot of different kinds of services. They all require different managerial structure.” The department will classify services in six different categories, each demanding different approaches: knowledge-based services, electronics and communications services, equipment-related services, medical services, facility-related services and transportation services. Buyers of services “should be predisposed” to fixed price contracts and should reduce the use of time-and-materials contracts. Carter called for increased emphasis on competition, “the greatest driver of productivity.” He said too many competitive contracts attract only one bidder; when that happens, he ordered contracting officers to conduct negotiations rather than accepting the bidder’s price. The Navy is developing a pilot preferred supplier program that will be expanded throughout DOD. Carter said the program “should recognize and reward businesses and corporations that consistently demonstrate exemplary performance.” Although preferred suppliers will not get preference in source selection, he said they should be rewarded through measures such as more favorable progress payments. On major weapons systems, Gates said program offices must start “designing to affordability and not just desire or appetite.” He said program managers must set an affordability target that cannot be changed without approval from above. “Consumers are accustomed to getting more for their money—a more powerful computer, wider functionality in mobile phones—every year,” he said at the Pentagon briefing. “When it comes to the defense sector, however, the taxpayers had to spend significantly more in order to get more.”  Carter’s memo is available at www.defense.gov/news/d20100914acquisitionprocurement.pdf.