On May 18, House Armed Services Committee Chairman, Congressman Thornberry introduced the Defense Acquisition Streamlining and Transparency Act (HR 2511), which aims to modernize how the Department of Defense (DoD) procures goods and services.  The draft legislation would allow the Pentagon to use e-commerce (online) vendors for commercial off-the-shelf products, streamline the defense contract audit process, and enhance the acquisition of services.

What are the Key Objectives of HR 2511 Regarding Products Procurement?

  • To permit Government buyers to purchase off-the-shelf items using the same online marketplaces (eCommerce) that commercial customers use to buy goods.
  • eCommerce will contain costs by increasing the selection of vendors from whom DoD may buy such products and foster competition.

The legislation also seeks to make the Defense Contract Audit Process more efficient.  Currently, the Defense Contract Audit Agency’s (DCAA) audits of incurred costs are slow and cumbersome with often little value to the taxpayer.  For example, in 2016, it took an average of 885 days to close out an incurred cost audit; such audits accounted for only a small amount of DCAA’s reported savings.

The new legislation would utilize two types of audits to ensure that contractors charge the government fair and reasonable prices– Forward-pricing (pre-work) and Incurred cost (post-work).

The materiality standards for incurred cost audits would be raised to avoid spending time and resources on low-value auditing.  Acquisition officials will not be restricted to using DCAA, but also would be able to engage a qualified private auditor to conduct incurred cost audits. Such audits would be required to be completed within one year.

How Does H.R. 2511 Impact Acquisition of Professional Services?

Currently, decision-makers lack information on past and anticipated future contracted services.  This means that they focus more on processing the contract action than evaluating the underlying need for service.  The proposal to use enterprise-wide data analyses to empower better decision making will help move the Department forward and not lag behind the private sector in decision-making and sharing information among stakeholders.

In 2015, the Pentagon spent $274 billion through contracts, 53% ($144 billion) was contracted services; Still, the Department and Congress are unable to perform effective oversight on services contracting.  The decision-making process for acquiring services is neither data-driven nor strategic in focus, encouraging inefficient use of funds.

In this proposal, the Department would collect and analyze the necessary information to evaluate and plan for contracted services.  Tying the services contracting process to the annual budget submission will improve transparency and accountability, while allowing Congress better oversight.  The Department needs would have to be specified earlier to allow better planning and evaluate requirements more strategically.

These reforms depend on decision makers’ access to data–DOD’s massive amounts of data is locked up and controlled by individual military services or defense agencies. This legislation requires data within the Department’s business systems to be made readily available to the Office of the Secretary of Defense, the Joint Staff, and the military departments to inform decision makers in making procurements.

Taken together, this legislation is intended to increase competition and provide data to better inform decision makers of choices for the purchase of products and services, creating competition, and making audit activities more timely and efficient.

How Will Changes Impact Government Contractors?

The fast acquisition through eCommerce channels will inevitably drive pricing down and dissolve much of the authority of the Competition in Contracting Act (CICA); thus, potentially harming the ability of small businesses to compete within the DOD acquisition space. Large companies that provide products in large volumes would offer economies of scale; small companies would have to rely on set-asides to remain in business.

We would also imagine, GSA is opposed to this bill as it would create yet another acquisition method outside of the schedule and dilute their stronghold.

The silver lining is that someone understands the bureaucratic hurdles that exist in current procurement methods is putting efforts forward to modernize the acquisition process.

We’ll continue to follow the bill through the House and update you on any revisions. While the debate continues, the GSA schedule is still the gold standard in contracting with the Government. If you need any assistance with obtaining or maintaining a GSA schedule, please contact us for a discussion of best practices and your critical.

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