Pentagon acquisition chief Frank Kendall unveiled a draft of his Better Buying Power 3.0 on Friday, soliciting feedback before the January implementation of his new plan to continue previous cost-consciousness efforts while also promoting innovation.

The undersecretary of defense for acquisition, technology and logistics was joined at the Center for Strategic and International Studies by a slew of top acquisition officials from the Defense Department and the military services.

Frank Kendall, Undersecretary of Defense for Acquisition, Technology and Logistics. Photo: DoD.
Frank Kendall, Undersecretary of Defense for Acquisition, Technology and Logistics. Photo: DoD.

Some items in BBP 3.0 are pulled straight from the 1.0 and 2.0 versions–the department will continue to set and enforce affordability caps, and promote “should-cost” approaches to program management.

But given the department’s tight budget, Kendall wants to incentivize traditional military contractors, commercial companies and the Pentagon’s acquisition community to create more value for the dollars available.

Part of creating more value is writing contracts that incentivize better performance for less money or less time, he said.

“There’s a shift in here to incentive-type contracts,” he told reporters at the Pentagon earlier in the week. “We focused on using the right contract type in 2.0, which was a slight change from 1.0, and there’s another change in this area which is based on the data that we looked at in this year’s annual report on the performance of the acquisition system. Strong correlation between formulaic incentive contracts and better results that are consistent with the government needs in terms of contractor performance.”

Another part of creating value is spending money on the right projects in the first place. He noted the Pentagon would embark on a long-range research and development effort to identify areas of work that might provide the highest return on investment. Kendall said his office would also work more closely with DoD laboratories, as well as with industry, to make sure that government and contractors’ internal research and development dollars are being spent wisely and complementary.

Kendall also spoke of the need to, in certain circumstances, spend more money up front to better position the department to save money in the long run. BBP 3.0 emphasizes performance-based logistics contracts, which Kendall said is more complex for contracting officers to write, but in the long-run they yield significant savings.

“When these have been well-structured business deals and when they’ve been effectively managed by the government, they’ve gotten good returns, it’s been a win-win for both industry and the government,” he said at the Pentagon. “In cases where we haven’t written a good contract or we haven’t executed effectively, then that’s not been the case.”

He said Performance Based Logistics (PBL) hadn’t achieved the savings he hoped for in the two years since releasing BBP 2.0,but he noted that 2013 was a very challenging year for the acquisition community with furloughs, the government shutdown  and sequestration, but he said BBP 3.0 would bring a renewed focus on putting the time into writing good PBL contracts and chasing the high return on investment he knows is possible.

BBP 3.0 also promotes the use of prototyping and experimentation, which he admitted was hard to find money for in tight budgets but said would be a priority when crafting the fiscal year 2016 budget request.

“It moves technology forward. It reduces technological risk to future products. It allows our design teams to continue to do productive work and supports that part of the industrial base. And it allows us to experiment with operational concepts that we might not be able to experiment with otherwise if we didn’t have the hardware. And I don’t know how successful we’ll be in the budget process this year, because things are so tight, but we’re going to do as much as we can in moving this direction,” he told reporters.

When it comes time to move from experimentation to a program of record, Kendall said it would be important going forward to bring industry into the requirements-definition phase, to both help the government understand what industry is capable of bringing them and also to help industry get a jump start on crafting their proposals.

That communication between the requirements community, acquisition community and industry “positions you much better, hopefully, to make good decisions about requirements, which do drive cost enormously,” he said at the Pentagon. “I think at the end of the day, we’re still trying to drive costs down. I mean, the focus of the long-range R&D planning, for example, is to find the things that matter the most so we can focus on those. And one of the things that we do through partnership with the requirements community is try to understand the marginal return on different levels of performance so that we can keep costs at a reasonable level, and not spend an enormous amount of money chasing a very small amount of improved performance.”

He expanded on this at CSIS, saying that the Pentagon gives industry a threshold and an objective level of performance–the minimum and what the department ideally wants–but the incentive is for companies to submit bids based on the threshold level to keep cost as low as possible. Kendall said the better communication could help better articulate what DoD would pay for higher performance–a program manager might be willing to pay 10 percent more on the contract to meet the objective instead of threshold level, for example. If DoD makes that clear, industry doesn’t feel it will be penalized for offering a higher value but higher cost option in its bid.

Another area of emphasis in BBP 3.0 is bringing more companies into the pool of DoD contractors. Kendall said he hopes to identify and break down barriers to entering into contracts with DoD, which fits in with the acquisition reform efforts taking place in the Pentagon and on Capitol Hill. He wants to buy commercial products in areas where industry is advancing faster than government can–he offered tactical radios as an example–and when the Pentagon does purchase commercial products, he wants to ensure he’s receiving a fair price even though he cannot require certified pricing the way he can with military products.