Cost is King

During my stay with DCAA, the focus was always (as it should have been) on costs.  Flexibly priced contracts represent the highest risk to the government according to the “rules.”  I could show you some spreadsheets that probably indicate a mass overinflation on fixed price contracts, but maybe another time.

I was reading about the NCMA Aerospace and Defense conference presentation by Shay Assad, Director of DPAP, in which he states that DOD will be looking for more “cost-conscious” contractors.  Apparently, there was a digression in the procedures that were in place from 2000 – 2005 while I was toiling away as an auditor for DOD, because contracting officers are now being told to analyze costs more thoroughly to justify the contract decisions that are being made.

Since I know that a lot of you reading this are on the contractor side, let’s make sure we frame this properly.  Cost plus is cost plus no matter what.  This is not a new initiative, it seems like they are getting back to what is supposed to be the best cost to the taxpayer – as it should be.  According to Assad, the goal is to make contracting officers more informed about what makes up a program’s cost and how to drive those costs down without affecting profit.

Contracting officers beware!  It is time you became financial managers.  DAU and NCMA have both been tasked with including more topics on cost and pricing and identifying and negotiating costs.

I think another area they should worry about is not so much the cost of what is in the contract, but whether what is in the contract should be in there in the first place.  I have seen line items that have had to be mixed and matched on a task order contract in order to get what is technicaly feasible for the customer to use.  I have watched as additional line items and costs are added to fixed price contracts just in case there is something that could need to be done.  There was never a requirement in the RFP, just a line item for contingencies added in because the contractor knows better than the technical rep from the government side (or vice versa).  Mr. Assad indicated during his presentation that contracting officers also need to work more closely with program managers and program executive offices to better articulate the technical trade-offs they are willing to make on a contract.

“It’s going to be much more transparent to you, in a best-value trade, how the government is making that trade-off,” Assad said, addressing contractors. “We’ll try to get some of that mystery out of the best-value equation.”  I am interested to see that equation – especially when it doesn’t include the letters LPTA.

About Marty Herbert

With 13 years of government contract administration, analysis, finance, and audit experience, I have established a firm baseline in ethics and a specialization in government contracts that has prepared me to become a subject matter expert in my field. I am currently working on enhancing government contracts management and compliance through workflow tools and product offerings - attempting to make the process proactive as opposed to reactive.
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