The Pentagon’s acquisition overseer this week issued a preliminary update to the Defense Department’s buying guidance, which emphasizes a stronger and better trained acquisition workforce, more backbone when it comes to controlling factors that cause costs to increase, metrics to better measure performance against goals and better ways to package incentives for industry to boost affordability without transferring unnecessary risk to weapons makers.

“I don’t think there is anything more important frankly to our outcomes than the professionalism of our workforce” and “developing and making them more stronger and more capable of doing a better job is really number one in terms of my priorities,” Frank Kendall, the under secretary of Defense for Acquisition, Technology and Logistics, said yesterday at a briefing yesterday hosted by the Center for Strategic and International Studies.

On Tuesday, Kendall issued a seven-page memorandum to the DoD acquisition workforce on Better Buying Power (BBP) 2.0, which when finalized will update the initial version of the Pentagon’s two-year old guidelines  for stretching its procurement dollars more effectively (Defense Daily, Sept. 15, 2010). Kendall is giving stakeholders in industry and government two months to review the updated guidance before finalizing it with specific goals and requirements for each of the 36 initiatives contained in BBP 2.0.

Kendall said that one of his key goals in strengthening the 150,000-person strong acquisition workforce is developing stronger leaders through greater experience, higher qualifications and standards and “shown their capacity to manage at a high level” whether that be for program managers, contracting officers, chief engineers, or life-cycle support managers. This initiative is a long-term project that entails constantly growing the workforce, he said.

He also said the DoD acquisition workforce needs to be more cost conscious, because for many people the “money is just a number,” yet it’s taxpayer money. “It gets at being aware of your costs, attacking your costs and trying to drive them down,” Kendall said.

The BBP 2.0 initiative will likely be followed in two years by a BBP 3.0 and additional guidance two years later, Kendall said. The initiatives are about continuous improvement, he said, adding that there is no “silver bullet” to improving affordability and value in the acquisition process.

In addition to workforce improvement, which is an entirely new category within the BBP initiatives, Kendall outlined a number of other new initiatives as well as efforts to retool earlier initiatives that essentially fizzled.

The initial BBP effort stressed the need for affordable programs and while that hasn’t changed, Kendall said a new affordability initiative deals with the enforcement of affordability caps. To do that, he said, will mean that there will have to be requirements tradeoffs to stay within affordability caps, which is “sort of a new world for us.”

Kendall said that historically the military services waste about 10 percent of their research and development (R&D) money on programs that are canceled before entering production, and in some cases those percentages increase to 20 to 40 percent for major acquisition programs.

“That’s a huge source of waste for the department,” Kendall said, and enforcing the caps won’t be easy because there will be pressure on acquisition officials to stick to the requirements because people will tell them that they can make it work.

It basically comes down to backbone.

“So we’re just going to have to be disciplined going forward and force requirements tradeoffs in order to stay within those caps,” he said.

Kendall also said that more can be done to be creative with incentives to influence contractor behavior. He said that spreading incentives throughout a development program based on schedule and performance hasn’t been helpful so more thought is needed about how to change industry behavior.

The sweet spot for incentives is somewhere between those that are easy to achieve and those that are impossible, he said. The BBP effort is not about taking away high profits.

The initial BBP guidance pushed the need for more fixed-price contracts, and Kendall said this has been the right approach. Fixed-price, incentive-fee contracts should be used more frequently in early production, rather than firm-fixed-price or cost-plus, he said.

“The idea here is not to transfer all the risk in the world to industry, which is what is what fixed-price development, did, back in the day,” Kendall said. That type of contracting put a lot of programs into trouble and there aren’t any good choices to get out of it, he said. Cost-plus remains a “good way to go” in development, he said.

Practices that are good in theory but aren’t executed well need to be retooled, Kendall said. For example, competitive prototyping during the development phase is supposed to reduce risk and maintain competition, a review of 12 programs that did competitive prototypes showed that more than two-thirds didn’t actually reduce risk in the actual design, he said.

While prototypes are designed to meet performance parameters, those designs don’t resemble the planned engineering and manufacturing design.

“We should have insisted industry reduce the risk and show us how they do that,” Kendall said.

Kendall also said that there needs to be fewer reviews of programs at the Office of Secretary of Defense level and instead hold the military service chains of command in the acquisition process more accountable for managing their programs.

“That’s sort of a cultural change that we’re trying to institute and we still have a ways to go on,” he said.

Industry and government program managers are concerned that contract audits are taking too long, resulting in delays of contract awards and close outs, Kendall said.

He said he is working with the Defense Contract Audit Agency to “drive down” the backlog in contract audits, which used to take nine months before contract award and now take 18.

“That’s unacceptable to me,” Kendall said.