If U.S. military readiness is going to keep pace in the near-peer competition with multiple threats, Department of Defense acquisitions must increasingly focus on creating maximum value for warfighters throughout the acquisition process.
Successful acquisitions are those that maximize value for the DOD at award and continue to create value for the U.S. military in the years to follow. Failed or delayed contract performance means taxpayer dollars and time are wasted and most importantly the military can lose out on valuable training and readiness opportunities.
Most agree that the current definition of best value equates to meeting and exceeding requirements and reducing all forms of risk to the government.
In its basic form, value equals the benefits to the customer or end user divided by the cost. Harvard professor and international negotiator Deepok Malhotra, defines value as, “whatever people find useful or desirable.” Given this perfectly simple answer, value can consist of all the following:
- Value is abstract and can be subjective across multiple users.
- Value should be additive as perceived by the end user(s).
- Value can be destroyed by poor performance.
- Total value created has only partial correlation to price.
- Simply purchasing services does not guarantee value.
The editor of Harvard Law School’s newsletter, Katie Shonk, employs a concise definition of value creation: “Value creation involves looking beyond the most obvious issue, such as price, for new sources of value that can be brought to the table to expand the pie.”
How value is created in the DoD contracting process
It’s especially crucial in the current defense picture to understand how value is created because without a better focus on creating value in acquisition, our near-peer challenges will mount as we battle our own internal processes. Importantly, the cycle of value creation does not stop at contract award.
The purpose of the DOD contracting process is to purchase value for warfighters, which is then measured by adding the acquisition cost to the perceived benefits, subtracting perceived negatives and adding contracted outcomes to get the total value created. The process then becomes dynamic as the end user constantly evaluates the perceived benefits, and negatives, of the program.
An all-too-common occurrence in government contracting is generated when a contract is awarded but then never attains the target requirements. A major contributor is the perennial contrast, or conflict, between the customer and the end user. In DOD parlance that means a conflict between the program office and the warfighter, as they tend to have differing incentives, goals and/or priorities.
In a procurement, two likely culprits can manifest: 1) government subject matter expert influence wanes through the process causing a difference between the initial RFP and final contract objectives; and 2) a bid analysis that fails to fully analyze technical realism. These shortcomings can have an adverse or muted effect for the warfighters.
The defense industry must be more proactive
A focus on value in the contracting process, end to end, is key. Contracting officers have a massive spectrum of services and products to bring to the military services, and it’s impossible for them to become niche experts in all of them. The niche experts are in the defense industry, so at each step of the acquisition process, the question needs to be asked, “Are we maximizing value opportunities?”
The onus is on industry for thoroughly researching these value creation opportunities and conveying options to the DOD. Referring to the above formula, value should be created throughout the process from RFP through execution, maintaining focus on the end-use__ the warfighters.
An approach for improving the acquisition process
Here is what the defense industry and DOD must do together to boost overall value in any given acquisition:
- Pre-RFP:
- Generate alignment on contract objectives between the DOD and the defense industry.
- Define all customers and end-users in the acquisition and assess how they are relevant.
- Prioritize end users and their legitimate needs, expectations and preferences.
- Identify what outcomes are needed to meet end-user expectations.
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- Assess the areas of potential conflict and trade-offs among customer and end-user interests.
- Generate smart requirements with what’s important to the end user and solicit inputs on how to meet the requirements while creating the greatest total value.
- Use smart contract construct on par with investment being asked of industry (start-up, term, minimum guarantees, growth options).
- Careful application of lowest price/technically acceptable-type contracts; of best value with tradeoffs source selection, which allows the government to award contracts to other than the lowest priced offeror or other than the highest technically rated offeror; of multiple award contracts; of indefinite delivery-indefinite quantity (IDIQ) contacts and of fair opportunity proposal requests, a requirement that under an IDIQ contract the government must give every company that holds that contract an equal opportunity to respond to a request for proposal.
- Post-RFP through award:
- Engagement of military subject matter experts throughout the process.
- Thorough and complete technical (and financial) bid evaluation by qualified personnel, even by outside analysts, for feasibility and realism every time.
- Post-acquisition:
- Evaluate results relative to pre-RFP goals and priorities.
- Solicit warfighter/end-user feedback regarding the acquisition and its results.
- Work with industry to continuously find ways to create value under the contract.
- Conduct an honest and open internal debrief with lessons applied to future procurements.
“Creating value” is more than a catch phrase. Value creation opportunities exist all along the contracting process, but they need to be identified and prioritized accordingly. Understanding what value consists of is imperative to creating value, because if what constitutes value isn’t clear, it’s impossible to create more of it.
