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'Should Cost': An Alternative to Formal Proposals?

Sometimes we in the U.S. acquisition business forget the most basic of rules, several of which are found in the Federal Acquisition Regulation under the section titled “1.102-2 — Performance Standards”:

  • “Satisfy the customer in terms of cost, quality, and timeliness of the delivered product or service.”
  • “The System must be responsive and adaptive to customer needs, concerns, and feedback. Implementation of acquisition policies and procedures, as well as consideration of timeliness, quality, and cost throughout the process, must take into account the perspective of the user of the product or service.”
  • “The System must perform in a timely, high quality, and cost-effective manner.”
  • “Minimize administrative operating costs.”
  • “In order to ensure that maximum efficiency is obtained, rules, regulations, and policies should be promulgated only when their benefits clearly exceed the costs of their development, implementation, administration, and enforcement. This applies to internal administrative processes, including reviews, and to rules and procedures applied to the contractor community.”
  • “The System must provide uniformity where it contributes to efficiency or where fairness or predictability is essential. The System should also, however, encourage innovation and local adaptation where uniformity is not essential.”

In that context I offer a modest proposal.

There has been a renewed emphasis on the use of “should cost” reviews by the Department of Defense in the last year. There is now a requirement to perform “should cost” reviews on all major defense acquisition programs that are coming to defense leadership for a milestone review. These “should cost” reviews are very time consuming, resource constraining and costly, to government program offices as well as to the contractors who are providing support to the review teams.

What if these “should cost” reviews could serve as an alternative to the need for a formal proposal that is currently required in order to provide contracting officers with the assurance that the government is paying a “fair and reasonable” price for the goods and services being acquired? Since these “should cost” review teams are led by senior leadership within the government and supported by senior management within the contractor, why wouldn’t the resultant “should cost” recommendation be a reasonable basis for a contract award? At the very least, both parties should walk away from the “should cost” review with an understanding of what each party believes the effort “should cost.”

If we accept this hypothesis, then there would be no need for a formal proposal — which often costs millions of dollars for Acquisition Category 1 programs. It would eliminate the need for the prolonged fact-finding and negotiation process, which also often takes many months to complete, and costs millions of additional dollars. It would free up many individuals (both for the government and contractor) who would otherwise be involved in supporting these negotiations to accomplish more productive work on the program (or possibly eliminate the need for some individuals who do nothing other than produce information for use by the negotiating team). Much of this effort is duplicative of work that was required to support the “should cost” review.

This is very much out-of-the-box thinking and would require a waiver to the requirement for certified cost and pricing data under the Truth in Negotiations Act. As a way to realize substantial savings, and to avoid having to process a separate waiver for each major defense acquisition “should cost,” perhaps a class waiver could be processed specifically authorizing an exception for these actions. If this was accomplished, however, it would eliminate several steps in the acquisition cycle that currently add time to putting work on contract. There would be no need for an audit review by the since there would be no certified data to review. This would free up auditors for other reviews relating to contractor performance and contractor rates, for instance.

The cycle time associated with awarding new contracts is also tied to government reviews such as business and contract clearances, along with peer reviews; however, if the individuals associated with these reviews were provided the opportunity to support the “should cost” reviews, then they would have the opportunity for the visibility that they need into the process by which the contracts are awarded. They also would have the opportunity to be briefed by the “should cost” review team on the methodology used in performing the review.

As we move away from traditional approaches to putting dollars on contract, we need to use our good judgment in shortening the cycle time that drives additional costs to major programs. While “should cost” reviews are indeed costly and time consuming, they should result in a price to the government that is one of high confidence in terms of schedule, cost and technical considerations. That information is critical in assessing the reasonableness of the resulting contractual arrangement with the contractor.

If there is concern regarding the terms and conditions that the contract would include, these would be identified in the draft request for proposal that would be provided to the contractor prior to the kickoff of the “should cost” review. The “model contract” could be a point of discussion during the “should cost” and would serve as a reference point for the respective “should cost” teams to follow. Profit would be a separate discussion that would be the subject of a modified clearance review process. Even when receiving a proposal, profit is the subject of separate discussions from the rest of the technical review.

Why would there be resistance to this concept? A conservative point of review would say that there is little protection for the contracting officer in the event that a post-award audit determines that the award was not “fair and reasonable.” There is always risk that even with a formal certified proposal there may be criticism of the job that was done by the negotiation team. The defense against that criticism is that the “should cost” review normally will provide more analysis into the reasonableness of the price than any proposal review team would be able to accomplish.

What would happen in the event that there is disagreement in the “should cost” number between the government and the contractor? The same thing that happens after a proposal review in the event of the parties reaching an impasse — the negotiation team elevates to senior leadership for resolution. With the “should cost” review involving many of these leaders, there should be recognition of these areas of disagreement before the “should cost” report is published. The resultant elevation would shorten the time needed to reach these more senior leaders.

This approach could be used only in those cases where a “should cost” is accomplished without a formal proposal. Many of the elements of a proposal would be required for the “should cost” review, and as such would necessitate much of the effort associated with proposal preparation. The savings would come in the avoidance of a second request for data in the form of a formal request for proposal and the associated fact-finding, audit and technical review of that proposal.

One of the biggest complaints from industry is that these large-dollar negotiations take too long, are too costly and use resources that are needed for other purposes. With the additional burden of conducting “should cost” reviews, perhaps an out-of-the-box suggestion such as this would ameliorate some of their concerns. It would require a strong commitment from defense leadership, but it would also show that there is recognition of the problem and a commitment to implementing alternative processes where they make sense.

 

James Gill is a graduate of the University of Southern California’s Defense & Strategic Studies Program, a former professor in the CSSB National Security Studies Program and is currently employed at the U.S. Space and Missile Systems Center, Los Angeles Air Force Base. These views are solely those of the author and do not represent those of the U.S. Air Force.

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