CohnReznick Review of the Proposed House of Representatives Bill

The Defense Acquisition Streamlining and Transparency Act Introduced by Representative Mac Thornberry (R-Tx) and Intended to Streamline the Government Acquisition System, Invest Early in Acquisition Programs, Improve the Acquisition Workforce, and Improve Transparency in the Acquisition System. (https://armedservices.house.gov/issues/defense-reform)

TITLE I: ACQUISITION SYSTEM STREAMLINING

SEC. 101: PROCUREMENT THROUGH ONLINE MARKETPLACES

ACT: The Secretary of Defense shall establish a program to procure commercial products through online marketplaces for purposes of expediting procurement and ensuring reasonable pricing of commercial products.

REVIEW: As interpreted, this proposed requirement calls for the Department of Defense (DoD) to have its own GSA Federal Supply Schedule-type contracting system, designated a “marketplace” instead of “schedule,” and intended only for the sale commercial goods and materials. Under this new system, the DoD will not require full and open competition to place an order on the “marketplace.” However, the “marketplace” provider must track “the number of suppliers that offered the same product on the same date and time that the product was ordered.” (The Act does not specify how this information will be used). The “marketplace” provider must also track suppliers that are debarred/suspended, etc. and provide this information in a monthly report to the DoD.

SEC. 102: PERFORMANCE OF INCURRED COST AUDITS

Compliance with Standards of Risk and Materiality
ACT:
For purposes of performing an incurred cost audit of costs associated with a contract of the Department of Defense, the Secretary of Defense shall comply with commercially-accepted standards of risk and materiality.

REVIEW: Conceptually, this is a good idea. However, the Act does not provide specifics as to where those standards can be found. A reference to AICPA AU Section 312, Audit Risk and Materiality in Conducting an audit, or similar standard is recommended and would remove potential ambiguity.

Audits of Indirect Costs
ACT:
The Secretary of Defense shall accept, without performing additional audits or reviews, a summary of audit findings on indirect costs of the contractor that were prepared by a commercial auditor under specific circumstances such as if the contractor does not have a predominance of cost type contracts as a percentage of sales.

REVIEW: Acceptable as written.

Selection of Auditing Entity to Perform Incurred Cost Audits
ACT:
DCAA ensures that, after September 1, 2020, not less than 25% of incurred costs are audited by qualified private auditors through the use of IDIQ contracts and task order awards. And once the audit is performed by the outside entity, no further review by DCAA is permitted.

REVIEW: Non-DoD agencies have already determined that the private sector can typically provide incurred cost audits more quickly and at lower cost than can the DCAA. However, the Act does not address whether the DCAA will be going from attestation type audits to performance type audits for Incurred Costs.

Materiality Standards for Incurred Cost Audits
ACT:
The Act defines minimum materiality standards to be used by auditors based on a number of incurred cost audit values, expressed as dollar values plus percentages of such costs.

REVIEW: This appears to conflict with the other verbiage in the Act that states that the DoD will comply with commercially-accepted materiality standards. This section provides multiple “minimum materiality standards” with no reference as to whether these minimums are commercially accepted.

Timeliness of Incurred Cost Audits
ACT:
A contractor must be notified by the government within 30 days after DoD receipt of its incurred cost submission whether the submission is adequate. DCAA will then have a year to complete the audit from the date of an adequate submission.

REVIEW: Given the current DCAA backlog of incurred cost audits, we question whether DCAA can meet this requirement without rejecting most of the incurred cost submissions as inadequate. There is no requirement in the Act for the DCAA to specifically tell the contractor what was inadequate or why it is inadequate. This could potentially lead to guessing and frustration on the part of the contractor.

SEC. 103: MODIFICATIONS TO COST OR PRICING DATA AND REPORTING REQUIREMENTS

ACT: Updates various titles of the United States Code to incorporate current regulatory dollar thresholds

REVIEW: Acceptable as written.

 

TITLE II: EARLY INVESTMENTS IN ACQUISITION PROGRAMS

SEC. 201: REQUIREMENT TO EMPHASIZE RELIABILITY AND MAINTAINABILITY IN WEAPON SYSTEM DESIGN

Sustainment Factors in Weapon System Design
ACT:
DoD is to add “sustainment factors”, particularly those factors that are affected principally by the design of a weapon system, early in the development of a weapon system.

REVIEW: The Act states that Program Managers are to include certain content in weapon system solicitations. However, Program Managers (PMs) do not draft solicitations, Contracting Officers (COs) do. PMs provide COs with the requirements for solicitations.

Accordingly, the Act should more correctly require PMs to include sustainment factors (which are to be measurable requirements for reliability and maintainability) in the solicitation technical requirements they provide to the CO. Contractors will then be penalized if their product does not meet the requirements. However, as most weapon systems are not “commercial” products and are manufactured pursuant to Government specifications, the reliability and maintainability is not something that a contractor can accurately predict. This will lead to higher proposed contractor costs to cover this uncertainty and could lead to reduced competition as more contractors will hesitate to bid when “reliability factors” are included in solicitations.

SEC. 203: MANAGEMENT OF INTELLECTUAL PROPERTY (IP) MATTERS WITHIN THE DEPARTMENT OF DEFENSE

ACT: The Office of Intellectual Property within the Office of the Under Secretary of Defense for Acquisition and Sustainment will be enhanced by adding more qualified IP resources and training.

REVIEW: Acceptable as written.

SEC. 204: IMPROVEMENT OF PLANNING FOR ACQUISITION OF SERVICES

ACT: The Secretary of Defense will provide annual data on service acquisitions, based on historical data (previous year) and broken down by each DoD agency, DoD Field Activity, command, or military installation and by category of services procured. Additionally, the Act calls for discontinuing the use of Bridge Contracts unless significant justifications are provided.

REVIEW: Instead of addressing the problem of an overworked, improperly trained, and underpaid acquisition workforce, the Act adds work to the contracting processes without adding training or compensation. The DoD acquisition workforce is doing its best to prepare annual budgets based on historical data while addressing its current contract responsibilities. However, they are overworked and adding to their workload will not solve this issue.

SEC. 205: IMPROVEMENTS TO TEST AND EVALUATION PROCESSES AND TOOLS

ACT: Adds an assessment of the sufficiency of developmental test and evaluation plans.

REVIEW: See comment to Section 204 directly above. Adding work without adding personnel and training does not address the issue. In general, DoD acquisition personnel are challenged to consistently provide adequate test and evaluation plans. We are unsure how adding an assessment will improve the process or end product.

 

TITLE III: ACQUISITION WORKFORCE IMPROVEMENTS

SEC. 301: ENHANCEMENTS TO THE CIVILIAN PROGRAM MANAGEMENT WORKFORCE

ACT: Implement a PM development program to provide for the professional development of experienced civilian personnel with the potential to become PMs of major defense acquisition programs.

REVIEW: We agree with the need to expand the number, and improve the training and competence of, DoD PMs. However, the Act addresses only acquisition PMs and not the need for a more qualified and better trained acquisition workforce. The Act calls for a plan to identify what is required of a good acquisition PM which, again, is a desirable and necessary goal. However, given the traits and expertise required of an acquisition professional (legal knowledge, technical knowledge, estimating knowledge, market research experience, good communications skills, etc.), to not also focus on acquisition workforce in the Act would be a significant oversight. Further, consideration should be given to re-evaluating and, if necessary, increasing the General Schedule (GS) ratings for acquisition professionals to at least gain parity with the PM workforce.

CONTACT
For more information, contact Christine Williamson, Partner, at christine.williamson@cohnreznick.com or (703) 847-4412, or Kristen Soles, Partner, at kristen.soles@cohnreznick.com or (703) 847-4411.

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