President Donald Trump signed an executive order April 9, “Modernizing Defense Acquisitions and Spurring Innovation in the Defense Industrial Base,” to reform the United States’ “antiquated defense acquisition processes.” The EO is intended to rectify “years of misplaced priorities and poor management” by improving the speed, flexibility and execution of defense acquisitions and eliminate perceived waste and inefficiency.
The plan also would modernize the duties of the defense acquisition workforce and incentivize and reward personnel for risk-taking and innovation. Given the substantial changes the overhaul of the defense acquisition system is designed to achieve, defense contractors should take notice of what the EO requires and be prepared for what comes next as the Department of Defense (DoD) begins to roll out the president’s directives.
What the EO Requires
By June 8, the secretary of defense must submit to the president a plan to reform the DoD’s acquisition processes that incorporates three specific items. The first is using existing authorities to expedite acquisitions, including preferences for commercial solutions (as described in FAR Part 12 and DFARS Subparts 212.2 and 212.70) and Other Transaction Agreements (OTAs), and using other pathways to streamline acquisitions under the Adaptive Acquisition Framework. The second is developing a detailed review process of functional support roles within the acquisition workforce to reduce inefficiencies by eliminating unnecessary tasks, reducing duplicative approvals and centralizing decision-making. Finally, the plan is required to include a detailed process by which the DoD can manage risk for all acquisition programs through a formal steering board.
By July 8, the secretary of defense must complete a comprehensive review of all major defense acquisition programs (MDAPs), identifying programs for potential cancellation and listing all MDAPs with their performance against original and approved cost estimates for the Director of the Office of Management and Budget (OMB) to determine future budgets.
The EO states that program cancellation may be deemed appropriate for those MDAPs that are as little as 15% behind schedule or 15% over cost. Given the reality that most procurements on the scale of MDAPs inevitably incur schedule slippage or cost overruns at some point, the 15% cutoff effectively means that no program will be completely safe from consideration for cancellation. The EO also requires consideration for cancellation programs deemed unable to meet “key performance parameters” or unaligned with the secretary of defense’s “mission priorities” – terms the EO notably fails to define.
Finally, by August 8, the secretary of defense must develop a plan to reform, right-size and train the acquisition workforce to properly execute the plan laid out in the EO. The reformation will include, among other things, performance evaluation restructuring and procedures to incentivize acquisition officials to use innovative procurement authorities and “take measured and calculated risks.”
The new performance evaluation metrics will include beneficial outcomes for those applying first consideration of commercial solutions, adaptive acquisition pathways through the Adaptive Acquisition Framework and iterative requirements based on the perspective of the end user. The EO directs the secretary of defense to work in coordination with the secretaries of the Army, Navy and Air Force in carrying out the reform initiatives in the EO.
Impacts on the Defense Industrial Base
The administration’s focus on OTAs and commercial solutions will have an immediate impact on members of the defense industrial base, as the initiatives described in the EO will be implemented “in all pending” DoD contracting actions. This priority shift likely will lead to new procurement strategies for contractors, as they will need to focus on proposals and procedures utilizing OTAs and other pathways under FAR Part 12 and DFARS Subparts 212.2 and 212.70 to remain competitive.
While change can be difficult, the EO incentivizes risk-taking and innovation, allowing for more creative freedom for contractors and providing more opportunities for different businesses to participate in defense acquisitions. On the other hand, the EO’s requirement for a comprehensive review and listing of MDAPs for future budget determinations by OMB means that programs will be subjected to scrutiny for potential cancellation. This, in turn, could have a chilling effect on risk-taking and innovation by MDAP contractors that are wary about going over budget and getting behind schedule on their projects while the review is being undertaken.
Ultimately, however, the EO’s full impact will remain unclear until applied in practice. The EO only discusses the development of plans to improve the defense acquisition process, not the implementation of those plans. The EO also is filled with vague objectives about meeting “key performance parameters” and “mission priorities” and “improving” and “sustaining” warfighting capabilities without defining what those parameters, priorities or capabilities are. Contractors will have to wait until the EO is implemented to see what exactly these objectives are and how they will affect procurements going forward.
Of course, contractors should also keep in mind that Congress has the power to alter the application of the EO because it allocates DoD funding and sets guidelines for how the money can be spent. For example, regarding the EO’s requirement for a comprehensive review of MDAPs for potential cancellation, the companies that work on these programs are sure to engage in lobbying efforts designed to remind members of Congress that these programs are, in fact, mission critical and, more importantly, could result in constituents in their districts being laid off if cancelled. This could incentivize Congress not to incorporate OMB’s budget determinations in future National Defense Authorization Acts and keep program funding in place for the foreseeable future.
Given the foregoing implications of the EO’s far-ranging directives, defense contractors should stay informed about developments stemming from its implementation. Miles & Stockbridge’s government contracts lawyers are monitoring developments and are available to answer any questions related to the EO and its potential impact on government contractors.
Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.
[View source.]
