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Background

' The current DOD organization for contract administration is a combination of centralized and decentralized activities conducted by the Defense Contract Administration Service (DCAS) and by the individual services.

DCAS is part of the Defense Logistics Agency (DLA) in the Office of the Secretary of Defense (OSD). It maintains 71 Plant Representative Offices, each administering all contracts at a particular plant on behalf of all DOD buying offices. In addition, there are 37 DCAS management area offices and nine DCAS regional offices, which perform contract administration duties at smaller firms.

The services have nine separate military headquarters managing the military contract administration effort -three Army, four Navy, and two Air Force organizations.

The DCAS is the largest contract administration organization. It employs 16,300 people and administers over ' 300,000 contracts with a total value of $105 billion. The Air Force, the next largest contract administration function in terms of contract dollars (over $90 billion), employs approximately 3900 people and administers approximately 50,000 contracts. with approximately 5900 people, the Navy administers about 24,000 contracts with a value of $60 billion. Close to 4,000 Navy contract administration personnel are responsible for the contract administration function in support of 16 shipbuilding and ship repair locations. The Army uses 1,100 people to administer S13 billion in contracts.

Methodology _

DOD and industry officials were interviewed. In addition, prior recommendations of other study groups were reviewed.

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Numerous studies have been conducted on the feasibility of consolidating the contract administration functions for all of DOD. In June 1963, the Project 60 study recommended that contract administration, with few exceptions, be consolidated. As a partial response, the DCAS was established in 1964 as part of DLA. However, strong resistance from the services prevented the complete consolidation of all contract administration functions at that time.

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However, that study did result in at least one addition al improvement in the management of contract administration. Before Project 60, each military service doing business with the same contractor was permitted to place its own contract administrators in the same plant. As a result of Project 60, the contract administration function for each plant was assigned to one service, which represented the other services, in order to present a single face to industry.

A 1978 study of the contract administration function performed by Booz, Allen & Hamilton also supported the notion of consolidating contract administration. This study identified several areas where DCAS performance was given high ratings by military customers: negotiation of overhead rates, negotiation of spare parts contracts, and performance of technical analysis of cost and schedule control systems criteria. _

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The contract administration function is an important part of theDOD acquisition process. The contract administration offices comprise DOD's direct interface with industry, providing much of the information needed for source selections and, after award, enforcing the terms and conditions of the contract. DOD's present approach to contract administration permits major variations in operating procedures among DCAS and the various service components performing contract administration. These variations include: inconsistency in procedures for evaluating contractor capabilities and performance; inability to reasonably assess operational effectiveness; inconsistency in the quality of the work force; and difficulty in applying innovations across service lines. There also appears to be a wide variance in the numbers, grade levels, and technical specialities of personnel assigned to contract administration activities in similar circumstances.

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Despite the numerous problems with the current management of contract administration and the recommendations of

the study groups cited above, the services continue to oppose the consolidation concept. They contend that con

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solidation could impair their ability to control service specific acquisition programs and to ensure responsiveness to program managers‘ concerns.

Recommendations

OSD 16-1: DOD contract administration should be consolidated under the direction of a senior OSD acquisition

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executive in order to accomplish three goals: (1) provide a

single method of contract administration practice, irrespective of the purchasing entity within DOD; (2) facilitate training, transfer, progression, and direction of contract administration personnel: and (3) reduce headquarters and overhead cost. .

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The OSD Task Force estimates that a consolidation of contract administration functions could result in a 10 percent reduction in manpower, with a savings potential of $90 million.

Assuming a 10 percent inflation factor, the estimated savings for the first three years from implementation of this recommendation would be:

($ millions)

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First year $ 90.0

Second year 99.0

Third year 108.9

Three-year total $297.9 Implementation

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The Secretary of Defense should direct the consolidation of DOD contract administration functions under the direction of a senior OSD acquisition executive as discussed above.

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The Department of Defense (DOD) should take appropriate action to simplify the complex regulatory system which governs the acquisition of weapons systems. This is essential for improving and expanding the competitiveness of the industrial base. » _

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Potential Savings: While it is difficult to quantify, simplification of the procurement process should reduce direct Government costs and indirect contractor compliance costs that are reimbursed by DOD. TO the extent that regulatory simplification will attract additional suppliers, the increased competition should lead to lower contractor bids.

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Background

The Armed Services Procurement Act is the primary statutory basis for procurement procedures in DOD. This Act sets forth broad policy guidelines for the acquisition of weapons systems, and DOD has issued a myriad of regulations and directives to implement the Act. _

The Defense Acquisition Regulations (DAR) comprise the major regulatory document issued by the Office of the Secretary of Defense (OSD), which governs procurement by the services. The stated purpose of DAR is to establish for DOD uniform policies and procedures related to the procurement of supplies and services. The services and the Defense Logistics Agency issue their own procurement regulations to implement DAR. OSD and the services also issue various appendices, supplements, directives, and manuals which influence the procurement of weapons systems.

In these various promulgations, DOD attempts to cover all aspects of the contracting process, such as how to choose among various types of contracts, how to negotiate prices, reporting requirements, how contractors are required to set up their accounting systems and allocate their costs (which allocated contractor costs are reimbursable by the department), etc. In published regulations alone, there are approximately 7,500 pages and a half million words of instruction material that apply to Government and industry personnel in contracting with DOD. Approximately 65,000 DOD employees are involved in direct acquisition activities in addition to more than 500,000 support personnel. Another 3,000,000 contractor personnel are employed by industry, whose costs are paid for in contract prices via contractor overhead or direct contract costs.

Methodology

Interviews were conducted with DOD and Office of Federal Procurement Policy (OFPP) personnel involved in the procurement regulations. We also interviewed industry executives responsible for complying with the regulations. We reviewed numerous Government regulations, as well as the process by which the DAR Council develops regulations. Considerable data used by the OFPP in developing the proposed new procurement system were also reviewed.

Findings

One of the reasons most often cited for the detailed procedures included in the DAR and the implementing regulations issued by the services is that many Government personnel involved in procurement lack the technical skills to use a high degree o professional judgment in making decisions. Most industry and Government personnel believe that the Government procurement regulations are too rigid. However, most Government personnel strictly adhere to the regulations, even when some flexibility is intended by the regulations, in order to avoid criticism.

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The OSD Task Force reviewed the procurement Policies of several major companies involved in both defense and non-Defense work. These companies procure significant amounts of supplies and services from vendors and subcontractors, and the function of procurement is very important to the overall operation of these companies. Without exception, the companies have developed and issued broad policy-type statements for use by all divisions and

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