By Emelie Rutherford

A leading defense-industry group called on the Pentagon yesterday to help incentivize cost savings by companies, tweak the contracting process, and streamline contractor- oversight methods.

The Aerospace Industries Association (AIA) submitted 10 final recommendations to the Department of Defense (DoD) for how it could buy goods and services more efficiently. The Pentagon plans to review the public suggestions for its new so-called efficiency initiative, which were due yesterday, as it crafts implementing guidance.

The efficiencies push is intended to yield $100 billion in savings over five years, money Pentagon leaders hope to use to maintain 2 percent to 3 annual real growth for warfighting capabilities.

AIA calls in its 8-page proposal for the government, in order to maintain a competitive industrial base, to “develop contracting and financial policies that encourage and reward good performance, promote fairness and stability, incent cost savings, and establish balanced and equitable risk-reward financial relationships.”

Specifically, the association’s 10 recommendations are intended to address three overarching problems it believes exist: the types of contracts DoD uses often do not incent cost savings; the Pentagon’s proposal and negotiation process is cumbersome and often results in “unfairly low” returns for contractors; and the oversight process makes multiple and sometimes contradictory demands on contractors that drive up costs.

Richard Sylvester, AIA’s vice president for acquisition policy, told Defense Daily that AIA’s two most “daunting” recommendations are related to incentivizing cost savings; they call on the Pentagon to seek additional multi-year procurement contracts and to expand the definition of commercial products to include defense products with competitive direct commercial sales to foreign governments and buys “of a type” and use commercial-type contracts for commercial items.

“Both are going to be difficult to do, because on multi-years, it ties up part of the budget and there’s a real concern for lack of flexibility; DoD doesn’t want to get too much of the budget tied up on multi-years,” Sylvester said. “I think you can do more mulit-years without (paying) too much, but that’s all a judgment call.”

Tweaking the definition of commercial items, he said, can also be a “judgment call” in terms of what is and is not commercial.

Both of those recommendations require some help from Congress. Still, Sylvester noted DoD can propose multi-year procurements and do some modifications of the commercial-items definitions.

AIA poses a third recommendation for incentivizing cost savings: that the Pentagon increase its use of long term performance- and outcome-based product support contracts.

To improve the proposal and negotiation process, AIA suggests DoD: reduce the volume of cost or pricing data for proposals; re-institute timely enterprise-wide rate negotiation and use of forward pricing rates; end serial reviews of contractor proposals before negotiations; and reinvigorate the use of weighted guidelines to develop profit objectives while recognizing contract technical difficulty and contractor cost saving initiatives.

AIA’s recommendations for improving the oversight process call for the Pentagon to combine multi-agency compliance reviews; establish a single oversight authority–such as the Defense Contract Management Agency or Defense Contract Audit Agency–for major prime contractors; and base audits on materiality and risk.

Sylvester said several of these recommendations should be relatively easy for DoD to do.

For example, he said it should not be difficult for the Pentagon to use weighted guidelines more, kill serial reviews of proposals before negotiations, and combine multi-agency reviews.

“The problem in there is going to come in to how to get different groups to work together,” he said about the different agencies’ reviews.

Reducing the volume of cost or pricing data for proposals should not be difficult, he said, “but you’ve got to have the workforce.”

“One of problems DoD has is they don’t have a lot of price analysts,” he said.

AIA previously submitted 97 efficiency suggestions to the Pentagon, and boiled them down to 10 items that is says the DoD can accomplish within its current authority.

The 8-page document AIA submitted to the Pentagon yesterday also states higher savings can be achieved through export-control reforms, the elimination of some non-valued added unique requirements for weapon systems, and requirements reform and stability.

These issues, Sylvester said, are “longer-range and more difficult.” AIA is crafting specific recommendations in these areas that it plans to submit to the Pentagon in mid- September.

“DoD has said they want to do something immediately, but it’s not a sprint, it’s a marathon, and they want to look at things with a broader impact,” Sylvester said. “We are taking them at word, and saying here are some things we think you can do immediately, and here are some things that probably will have a bigger impact but it will take us longer to flesh out. And we really hope and believe that they’re serious about that.”

Defense Secretary Robert Gates on Aug. 9 announced a series of initiatives for making the Pentagon more efficient, including shuttering the Joint Forces Command and halting the conversion of Pentagon contractor jobs in in-house positions.