The Defense Department wants to shake up how it works with value-added resellers.

In a draft memo obtained by Federal News Network, the Pentagon would place a 5% cap on most fees charged by resellers starting with a specific special item number (SIN) for IT products. This cap would only apply to IT products sold through the General Services Administration’s schedule contract.

DoD says it spent about $2 billion in fiscal 2024 through the GSA schedule on these technology products.

The draft memo is one of two expected from the administration to address what it believes are higher than normal costs when buying IT products and services through resellers.

GSA initiated this review and proposed overhaul of the reseller market earlier this year. It started in June with a letter to 10 value-added resellers to collect data to better understand the role of such companies and what it would take for original equipment manufacturers (OEMs) to sell directly to the government. Then in early October, sources said GSA was close to issuing a memo that would establish such a cap on resellers.

While GSA has yet to issue such a memo, this undated draft memo from the undersecretary of Defense for Acquisition and Sustainment, Michel Duffey, offered more specifics into what this market cap and oversight process would look like.

Duffey references GSA’s plans in his draft memo.

Duffey wrote the initiative would “initially entail GSA contracting officers’ use new control measures to support their determinations of price reasonableness for products offered for sale under IT Special Item Number 33411. Specifically, GSA will more closely scrutinize pricing from entities that hold themselves out as resellers.”

It would focus on SIN 33411, which is for the purchasing of new electronic equipment, including desktops, laptops, servers, storage equipment, routers and switches and other communications equipment, audio and video equipment and even two-way radios.

Since this cap would only apply to purchases off the GSA schedule, DoD is returning to the idea that these prices are no longer automatically considered “fair and reasonable.”

This harkens back to 2014 when both DoD and NASA issued deviations to the Federal Acquisition Regulations that said schedule prices shouldn’t be automatically considered fair and reasonable. Several years later, DoD and NASA removed that deviation.

“When placing orders on IT contracts, I expect the department’s contracting officers to independently determine fair and reasonable pricing by considering the unique factors of a given acquisition in the same manner as GSA,” Duffey wrote in the draft memo. “Finally, and in general, we will apply the same common-sense approach to avoid paying excessive pass-through costs and avoid paying non or low-value added price markups across the complete range of the procurement.”

A third change DoD would require is for vendors to disclose in their price proposal the manufacturer or dealer price, the percentage markup from the OEM price. DoD also will require a description of the value provided that compromises the markup amount. Any markup more than 5% would require additional vendor justification and a higher level management attention. The memo doesn’t describe what either of those will look like.

Multiple emails to DoD seeking comment were not returned.

DoD’s reasoning for price caps questioned

Federal acquisition experts and resellers questioned the DoD’s rationale for applying price caps.

Three different executives who work for resellers as well as a former federal acquisition official, all of whom requested anonymity for fear of retaliation and to talk about a pre-decisional memo, said this approach flies in the face of what the Trump administration has been trying to do since January to relieve the burden of federal acquisition and encourage more vendors to participate.

One executive at a reseller says the first thing that DOGE went after was cost plus contracts. Now, DoD wants to take what this person called clean and simple transparent firm fixed price contracts for commercial products and turn these into cost plus type contracts, which the executive said makes no sense.

“Audits, narratives, justifications, additional steps and time, how is this simplifying acquisition and growing the industrial base?” the executive asked. “Are they going to cap gross profit on other items they buy like cars, furniture, office supplies, building materials, heating, ventilation and air conditions (HVAC) systems, lighting, plumbing, tools, safety gear and maintenance supplies next?  Where does it stop? Why are we being targeted?”

The executive says there seems to be a big misunderstanding about the role of resellers and even how the market works.

“It’s competition, not price controls, that drive down price. If that’s the ultimate goal,” the executive said. “Capping margins would drive out the best, service-oriented partners that invest in engineering and innovation — leaving behind low-touch resellers who only process orders. This reduces competition, supplier diversity and access to expertise.”

Another executive at a reseller says determining what constitutes an “excessive mark-up” is subjective. The source said for an administration that wants to keep things moving in a timely pace, giving contracting officers discretion about what is an excessive mark-up will cause more problems than it will solve.

“They are assuming that the contracting officers have the appropriate knowledge and training to do that,” the executive said. “Unfortunately and frequently that isn’t what the contracting officers have. There is a lack of understanding that will end up causing confusion and delays.”

VARs solve problems

A third executive questioned how DoD, or any agency, would oversee this entire initiative.

They asked whether the resellers would not need a cost approved accounting systems? If so, that would add significant costs and burdens.

Finally, the former federal acquisition executive, who spent more than 25 years in the federal government, says resellers provide a lot of value to agencies, partly because OEMs traditionally don’t sell directly to the government nor do they want to, but also because the resellers solve problems for the agency.

“They know the technology. They know the OEMs and can tell you what will work or what will not work. Resellers are invaluable,” the former executive said. “In terms of their markup, you just have to negotiate better. If you get at least two resellers to bid, you will get a good price.”

Is capping profits even legal?

All the sources agreed that if DoD or GSA wants better prices, they should do two things: ensure there is competition at the task order level and train contracting officers and other acquisition workers to be better negotiators.

“If you don’t have contracting officers who can push for better pricing at the task order level, then how are you going to have contracting officers who can make these determinations of the value of the markups that are over 5%?” asked the third executive. “You are better off training contracting officers to go after better prices at the task order level. GSA has ways to help like the 4P tool that combs all over for publicly available prices. But applying caps on fees or profit goes against capitalism. It goes against common sense and it will be detrimental to the government and its industrial base.”

Aside from just questioning the rationale behind the price caps, experts also asked whether the memo would violate the FAR and even some federal laws.

One of the reseller executives highlighted five FAR provisions and/or laws this idea seems to violate.

The executive says this requirement seems to violate the Truth in Negotiations Act (TINA) in the sense that commercial Items are not subject to TINA, which requires contractors to provide certified cost or pricing data to the government during negotiations for other items because the commercial marketplace is presumed to be a competitive environment and should drive a reasonable price.

Another part of the FAR this initiative may violate is Part 2 for the acquisition commercial items. The executive said if the government is obtaining a “fair and reasonable” price, then the focus is not about contractor costs, reasonable mark-up, or profit, it’s about the price the agency is paying.

A third section of the FAR this may violate is under Part 15. This includes a prohibition on obtaining certified cost and price data for commercial items.

Cy Alba, a procurement attorney with the firm Piliero Mazza, said if the government is buying through a firm fixed price contract, then they are not supposed to be asking for cost or price information. He added if it’s awarded through the GSA schedule and it’s below the maximum order threshold then prices are determined to be fair and reasonable by GSA.

Alba also said if it’s a commercial item, or really anything that has adequate price competition, the market is supposed to make that determination that the price is fair and reasonable. He said if the government thinks the markup is too high, then they don’t have to buy the product or service from the vendor.

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Since January 2025, the Justice Department has been aggressively holding federal contractors accountable for violating cybersecurity violations under the False Claims Act.

Over the last 11 months, the Trump administration has announced six settlements out of the 14 since the initiative began in 2021.

Sara McLean, a former assistant director of the DOJ Commercial Litigation Branch’s Fraud Section and now a partner with Akin, said the Trump administration has made a much more significant push to hold companies, especially those that work for the Defense Department, accountable for meeting the cyber provisions of their contracts.

“I think there are going to be a lot more of these announcements. There’s been a huge uptick just since the beginning of the administration. That is just absolutely going to continue,” McLean said during Federal News Network’s Risk & Compliance Exchange 2025.

“The cases take a long time. The investigations are complex. They take time to develop. So I think there are going to be many, many, many more announcements, and there’s a lot of support for them. Cyber enforcement is now embedded in what the Justice Department does every day. It’s described as the bread and butter by leadership.”

A range of high-profile cases

A few of the high-profile cases this year so far include a $875,000 settlement with Georgia Tech Research Corp. in September and a $1.75 million settlement in August with Aero Turbine Inc. (ATI), an aerospace maintenance provider, and Gallant Capital Partners, a private equity firm that owned a controlling stake in ATI during the time period covered by the settlement.

McLean, who wouldn’t comment on any one specific case, said in most instances, False Claims Act allegations focus on reckless disregard for the rules, not simple mistakes.

“We’ve seen in some of the more recent announcements new types of fact patterns. What happens is when announcements are made that DOJ has pursued a matter and has resolved a matter, that often leads to the qui tam relators and their attorneys finding more matters like that and filing them,” said McLean who left federal service in October after almost 27 years. “It’ll be interesting to see if these newer fact patterns yield more cases that are similar.”

Recent cases that involve the security of medical devices or the qualifications of cyber workers performing on government contracts are two newer fact patterns that have emerged over the last year or so.

Launched in 2021, the Justice’s Civil-Cyber Fraud initiative uses the False Claims Act to ensure contractors and grantees meet the government’s cybersecurity requirements.

President Joe Biden signed an executive order in May 2021 that directed all agencies to improve “efforts to identify, deter, protect against, detect and respond to” malicious cyberthreats.

130 DOJ lawyers focused on cyber

Justice conducted a 360 review of cyber matters and related efforts, and one of the areas that emerged was to use the False Claims Act to hold contractors and grantees accountable and drive a change in behavior.

“The motivation was largely to improve cybersecurity and also to protect sensitive information, personal information, national security information, and to ensure a level playing field, so that you didn’t have some folks who were meeting the requirements and others who were not,” McLean said.

“It was to ensure that incidents were being reported to the extent the False Claims Act could be used around that particular issue. Because the thought was that would enable the government to respond to cybersecurity problems and that still is really the impetus now behind the enforcement.”

McLean said the Civil-Cyber Fraud initiative is now embedded as part of the DOJ’s broader False Claims Act practice. It has about 130 lawyers, who work with U.S. attorney’s offices as well as agency inspectors general offices.

Typically, an IG begins an investigation either based on a qui tam or whistleblower filing, or a more traditional review of contracts and grants.

The IG will assign agents and DOJ lawyers will join as part of the investigative team.

McLean said the agents are on the ground, interviewing witnesses and applying all the resources that come from the IGs. DOJ then decides, based on the information the IGs bring back, to either take some sort of action, such as intervening in a qui tam lawsuit and taking it over, or to decline or settle with a company.

“They go back to the agency for a recommendation on how to proceed. So it’s really the agencies and DOJ who are really in lockstep in these matters,” she said. “DOJ is making the decision, but it’s based on the recommendation of the agencies and with the total support of the agencies.”

Many times, Justice decides to intervene in a case or seek a settlement depending on whether the company in question has demonstrated reckless disregard for federal cyber rules and regulations.

McLean said a violation of the False Claims Act requires only reckless disregard, not intentional fraud.

“It’s critically important for anyone doing business with the government, especially those who are signing a contract and agreeing to do something, to make sure that they understand what that is, especially in the cybersecurity area,” she said. “What they’ve signed on to can be quite complicated. It can be legally complicated. It can be technically complicated. But signing on the dotted line without that understanding is just a recipe for getting into trouble.”

When a whistleblower files a qui tam lawsuit, McLean said that ratchets up the entire investigation. A whistleblower can be entitled to up to 30% of the government’s recovery, whether through a decision or a settlement.

Self-disclosures encouraged

If a company doesn’t understand the requirements and doesn’t put any resources into trying to understand and comply with them, that can lead to a charge of reckless disregard.

“When it comes to employee qualifications, it’s the same thing. If a contract says that there needs to be this level of education or there needs to be this level of experience, that is what needs to be provided. Or a company can get into trouble,” McLean said.

“The False Claims Act applies to making false claims and causing false claims. It’s not just the company that’s actually directly doing business with the government that needs to worry about the risk of False Claims Act liability, because a company that’s downstream, like a subcontractor who’s not submitting the claims to the government, could be found liable for causing a false claim, or, say, an assessor could be found liable for causing a false claim, or a private equity company could be found liable for causing a false claim. There are individuals who can be found liable for causing and submitting false claims.”

She added that False Claims Act allegations can apply not only to just the one company that has the direct relationship with the government but also to their partners if they are not making a good faith effort to comply.

But when it’s a mistake, maybe an overpayment or something similar, the company can usually claim responsibility and address the problem quickly.

“DOJ has policies of giving credit in False Claims Act settlements for self-disclosure, cooperation and remediation. That is definitely something that is available and that companies have been definitely taking advantage of in this space,” McLean said. “DOJ understands that there’s more focus on cybersecurity than there used to be, and so there are companies that maybe didn’t attend to this as much as they now wish they had in the past. The companies discover that they’ve got some kind of a problem and want to fix it going forward, but then also figure out, ‘How do I make it right and in the past?’ ”

McLean said this is why vendors need to pay close attention to how they comply with the DoD’s new Cybersecurity Maturity Model Certification.

She said when vendors sign certifications that they are complying with CMMC standards without fully understanding what that means, that could be considered deliberate ignorance.

“Some courts have described it as gross negligence. Negligence would be a mistake. I don’t know if that helps for the for the nonlawyers, but corporations which do not inform themselves about the requirements or not taking the steps that are necessary, even if it’s not through necessarily ill intent, but it’s not what the government bargained for, and it’s not just an accident. It’s a little bit more than that, quite a bit more than that,” she said.

“The one thing that’s important about that development is it does involve more robust certifications, and that is something that can be a factor in a case being a False Claims Act and a case being more or less likely to be one that the government would take over. Because signing a certification when the information is not true starts to look like a lie, which starts to look like the more intentional type of fraud … rather than a mistake. It looks reckless to be signing certifications without doing this review to know that the information that’s in there is right.”

Discover more articles and videos now on our Risk & Compliance Exchange 2025 event page.

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As the Defense Department moves to implement Defense Secretary Pete Hegseth’s sweeping acquisition reforms, Space Force leaders warn that the depth of workforce cuts is threatening to cripple the service’s ability to execute them.

“You have to have a strong, vibrant workforce to do the work and we’re in a really interesting time and a troubling time. There is a strong, motivated force but there have been an incredible amount of pressures on them this past year,” Maj. Gen. Stephen Purdy, acting assistant secretary for space acquisition and integration at the Department of the Air Force, said Nov. 20 during a Center for Strategic and International Studies event. 

“We have a looming increase in acquisitions coming down the pike, and so that presents us with a really difficult situation of where we need to double down on our acquisition workforce, our acquisition training. We are in a situation where we barely have enough acquirers to do all of the work that we have now,” he added.

Purdy said the service has spent the last few years implementing the acquisition tenets set by Frank Calvelli, who stepped down as assistant secretary of the Air Force for space acquisition and integration in January. Calvelli pushed the service to “build smaller satellites and smaller ground systems and minimize non-recurring engineering or new design.” He also preferred to use fixed-price contracts when possible. Calvelli’s “tenets” were a back-to-basics formula meant to fix chronic problems in space programs.

“We’ve built upon that this last year. We haven’t let grass grow under our feet as we’ve kind of taken over in January. And we’ve built upon that foundation and moved on out and really done a lot this year that kind of foreshadowed [Hegseth’s] acquisition reforms. But the workforce question is really the key piece,” Purdy said.

The Trump administration push to reduce the size of the federal workforce through initiatives such as the deferred resignation program and voluntary early retirement has had an “outsized impact” on the Space Force. In May, Chief of Space Operations Gen. Chance Saltzman told Congress the service had lost nearly 14% of its civilian workforce — much of it coming from Space Systems Command, the Space Force’s acquisition hub.

“I’m worried about replacing that level of expertise in the near term as we try to resolve it and make sure we have a good workforce doing that acquisition,” Saltzman told the Senate Armed Services Committee at the time. 

When asked about the acquisition workforce, Saltzman told reporters that these workforce reduction efforts have taken civilian experts “out of play,” leaving gaps in the institutional knowledge and technical skills.

As the Space Force begins implementing Defense Secretary Pete Hegseth’s acquisition overhaul, which calls for using commercial technology as the default option, great competition and faster delivery, Purdy warned the service may not have the workforce needed to shift to the new way of doing business. 

“If you look at [Hegseth’s] acquisition reforms that he’s laid out, a bunch of great initiatives and things we need to get after. But … you need the numbers of people, and you need the quality to understand. If you say ‘go commercial,’ and if you say, go after ‘new manufacturing mechanisms’ and take advantage of all of the new space companies that are out there, you need a larger number of people just to even track that activity. You need to be able to understand all that’s going on. You need to understand the incentive structure,” Purdy said.

The strain is particularly acute in contracting since the service simply doesn’t have enough contracting officers to handle a much larger workload created by recent acquisition reforms.

“In the past, if we had an acquisition program and we would go 20 years and it would be with one prime, we would maybe have one or two contracts, an R&D contract and a production contract. Pretty simple. One prime, a couple contracts. Now, with some of our programs there’ll be a five-year program, but we’ll probably have 20 contracts because I’m dealing with 10 or 15 different contractors in industry, which is literally what acquisition reform is telling us to do,” Purdy said.

“We have a serious issue here at a federal level on contracting and it’s just the numbers of folks. We do not have the numbers of contractors that we need at a federal level. Every federal agency has problems, and so we do not have the right numbers that we need,” he added.

Saltzman said the service is trying to ease the strain by requesting waivers to the hiring freeze that has been in place since the start of the Trump administration, as well as hiring authorities to fill essential acquisition and contracting roles.

The service also recently launched its first acquisition training course.

Kay Sears, vice president and general manager of space, intelligence and weapon systems development at Boeing, said that while the Space Force acquisition community is more open and collaborative than ever, it is also apparent that the service’s workforce is stretched thin.

“You can tell that they’re stressed. You can tell that they’re overworked. And then when you get into that contracting element that’s really where I see the slowdown, the, ‘Hey, I’ve only got one playbook — I’m going to go follow the playbook,’ and we really start to lose sight of the mission objective,” Sears said.

Acquisition experts have said that while the proposed acquisition changes could meaningfully reshape how the Pentagon buys capabilities, the success of Hegseth’s reforms will hinge on whether the department can equip the workforce with the skills needed to operate differently. 

“Scores of case studies have shown, there has to also be an aggressive, intentional and holistic approach to change management, prominently including how the relevant workforces are developed. Absent re-aligning those processes, real change will remain elusive,” Stan Soloway, president and CEO of Celero Strategies and federal acquisition expert, told Federal News Network.

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Interview transcript:

 

Stephanie Kostro It is the end of the calendar year, beginning of the government fiscal year. And this is the time of year when a lot of companies take a step back and evaluate their business strategy and their planning for the next few years. We see a lot folks having off-sites in December or in January to do some of this strategic planning and I’ll be frank with you, I think a lot people will be happy to see 2025 end. And they will celebrate the new year in all sorts of ways, just because of what they’ve been through this year. If your listeners can harken back to earlier this year, the efficiency initiatives really did a number on a lot of the business plans that had been developed among government contracting companies. Some of them had massive de-scoping of their contracts. Some of them had contract terminations. Some, particularly those who worked for agencies like U.S. Agency for International Development, and the Department of Education, some at Health and Human Services really saw a diminution of their planned objectives for throughout the year. And so as we go into the December and January planning cycle for these companies, what they’re really looking for are signs from the government that there is work coming as they start to think through what calendar ’26 looks like. And they start to do their resource planning for personnel and for bid teams to put together proposals. That’s really what they are looking for. And I will have to say, Terry, earlier this year. PSC, the Professional Services Council, we represent services and solutions providers. And typically every year we put together something called our business forecast, which looks at our scorecard, which looks at all of the web-based procurement forecasts put out by agencies. And we would look at tens of agencies and their forecasts and we would rate them based on 15 key attributes, which we developed in industry, about what is useful for those forecasts. This year in 2025, we made the decision that instead of putting out our seventh annual forecast, we skipped this year. The forecasts just weren’t there, and they’re still not there.

Terry Gerton So how is it that agencies put those forecasts out, and what do they base it on? And I guess the third part of that question is, why aren’t they there?

Stephanie Kostro This was a mandate from, among others, from the Office of Federal Procurement Policy, which is a White House office that said, hey, agencies, to the extent that you can, put out forecasts on your websites. And it was really to help drive new companies to join the federal marketplace and to keep those companies that are part of the GovCon community interested. If you could look at a website and say, okay, there is an opportunity coming up in Q1, Q2, Q3, and let’s build towards that opportunity. What happened earlier this year is a lot of those websites went dark. I think it was because as part of the efficiency initiative, it was no longer a useful tool because things were moving very, very quickly. What I find interesting though, is that those websites are still dark. They’re still not there. And so I’m not entirely sure how our government contracting community can put together a reliable business strategy for 2026 and beyond in the absence of that information.

Terry Gerton Well, some estimates are that the contracting workforce itself has been reduced by over 25%. Are we just missing the people who used to do this?

Stephanie Kostro I think that’s part of it, Terry. We’re missing some of the folks who took that deferred resignation or the “fork in the road” option. Some of them did the voluntary early retirement programs. I would also say in many agencies, and I’ll use the phrase “OSDBU”, but I’ll actually speak out the acronym here, the Office of Small and Disadvantaged Business Utilization. Those were usually the offices that had the lead on publishing these websites, and those offices have sort of been dismantled in some agencies. They are certainly de-emphasized in a lot of the agencies. And so it might be … they’re missing the people, that is true, but it’s also they’re also missing the offices that have the lead on putting together these forecasts. And it really is a shame because, you know, the business community uses these forecasts in so many different ways. It helps them do, I mentioned the business planning, but helps them figure out who they want to partner with, who’s going to be their subcontractors or their suppliers, their vendors, etc. This is a real gap in understanding of what the federal marketplace can offer companies. And I do think it will have effects on whether commercial companies want to get involved in government work. They just don’t know what the opportunities are.

Terry Gerton I’m speaking with Stephanie Kostro, president of the Professional Services Council. Stephanie, one more question on this. I mean, GSA has gone through a lot of work to centralize procurement and forecasting. Would you expect that GSA will take this over perhaps and share their forecast?

Stephanie Kostro I love that you asked this question, Terry, because as I mentioned the last time we put out our forecast, it was in 2024 and we had actually at PSC highlighted GSA as a model for putting out these forecasts. We mentioned that GSA has something called their Acquisition Gateway, which sets a high bar for government business forecasting and it encourages the migration to the GSA tool for other departments. So Department of Labor, Department of Justice, they were using the GSA Acquisitions Gateway. So I think this is a fantastic opportunity to go back to that gateway and have GSA take the lead.

Terry Gerton Speaking of forecasts, PSC’s got a big session coming up starting on December 1st. Your vision federal market forecast. Tell us about that.

Stephanie Kostro I love that our entire segment here is devoted to forecasting, because the procurement dork in me is celebrating here. So PSC has this conference and it’s actually run by our foundation, which is our 501c3 nonprofit affiliate dedicated to education. And so it is a year-long process where we have so many teams come together. There are 21 different study teams, they focus on things like Health and Human Services, or Customs and Border Protection as part of the Homeland Security team. And this year of agency discussions, they speak to think tank folks, they speak procurement officials within the government, and it culminates in this conference and it’s happening in person on December 1st. It’s a virtual day for December 2nd and 3rd. It is where these 21 different study teams present their findings. So it’s not just tied to a web-based procurement forecast, but rather these discussions that they’re having with officials. We had over 400 volunteers as part of this process, and I’m just very excited. It is a great opportunity to really hear what’s going on in the procurement world, not just for opportunities, but what the dynamics look like, what impact inflation is having, etc. And to be honest, what impact these efficiency initiatives have had on the federal marketplace. So I highly recommend this conference. Again, it’s December 1st through the 3rd, and December 1 is the only in-person day here in Arlington.

Terry Gerton It sounds like in the absence of the agency forecast that we were talking about at the beginning of our conversation, this may be a great opportunity for contractors, those who are considering government work, to find out from inside sources what’s going on.

Stephanie Kostro It’s a perfect opportunity to get some business intelligence. It’s also a great networking opportunity because we do have government folks come to this conference as well to hear about what other agencies are doing. And so I highly commend it to folks who are listening, but I’m certainly going to be there and soaking up all of the knowledge that I can. I’m particularly looking forward to the Defense Services presentation in light of the Secretary of War Hegseth and his arsenal of freedom speech that he gave about transforming the processes for requirements and acquisition. I’m really looking forward to that. And I always look forward sort of to the top-line and the IT modernization teams as well. So if I were going to recommend three sessions, those are the top three. But they’re all very, very interesting and I’m looking forward to it.

Terry Gerton So how do people who want to attend find out about it and register?

Stephanie Kostro They can go to PSCouncil.org, and you can also search for Vision Federal Market Forecast and the sessions will pop up. There is a fee, obviously, for this, but it is open to the public. It is a widely attended gathering which allows government folks to attend. That is how they can connect with this conference.

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Interview transcript:

 

Terry Gerton A lot has happened over the last few weeks and as people in the contracting world get back to their desks and start things back up again, they’ve got a lot to touch base on. Just before the shutdown we had the publishing of the FAR overhaul and defense has come out with a lot of new priorities. How can people start to put all these pieces together and make sure they’re working with the whole picture?

Emily Murphy It’s a really complicated picture right now. I want to go back and say — GSA, DoD, NASA, OFPP did an incredible job in getting that FAR overhaul done and published. And they even got the updated FAR companion out during the shutdown, which I know has to have been a struggle. So they did a wonderful job with it. USDA, Department of Homeland Security, and GSA have all adopted the entire new set of standard deviations. That means, however, that no other agency has. So if you’re a contracting officer right now or you’re a contractor, there’s not a standard set of rules you can go to. You have to be looking at which deviations did this agency adopt? How does that interface with what contract vehicle I’m using? And what about this other policy that’s happening over at the Department of War? There’s not a clear one-size-fits-all answer to the problem anymore. If you think of GSA, for example, assisted acquisition has always said that they follow the rules of the funding agency. So, money and requirements coming into GSA’s assisted acquisition service, they’re going to follow that agency’s money and the rules that come with it. Well, that might mean that they’re adopting, if it’s coming in from Department of Energy, one set of rules; Department of War, another set of rules. If it’s coming in from the SBA, it might be a third set of rules. So I keep thinking that if I’m an 1102 right now, a contracting officer, I want more monitors. Because I’m going to have to have so many different versions of rules and guidance up until we can make it through this. I think the standardization is going to come, but I think it’s going to be a really tough few months — as the new rulemaking takes effect  as more and more agencies adopt those standard deviations, and as we get more clarity on what the Department of War’s new announcement from the 7th of December actually means in the application, so that we know what to expect with those contracts.

Terry Gerton How much more complicated does the continuing resolution make it? Because now some agencies have full-year appropriations. We have a CR in place for others through the 30th of January. And on top of that, we have all these new rules that you’re talking about.

Emily Murphy So if one thing contracting officers are used to dealing with and contractors are very used to dealing with, it’s CRs. I don’t think that that’s going to be the hard thing. It does slow down new starts for the agencies that have a continuing resolution. For the agencies that actually have their appropriations, it means that they can get started. It actually may help balance the workload out a little bit, because you can start the new starts for agencies that have the authority while you’re still working on the continuing resolution and continuing the existing contracts for all the other agencies. But the sort of mosaic of rules and regulations out there is going to make things tougher … it’s one more complication thrown into the mix. And the irony is that this is all really intended to make things simpler, faster, cheaper, better. And I think ultimately it will, but it’s going to be a little bit painful for the next couple months.

Terry Gerton Well, speaking of simpler, faster, better, cheaper, what’s the perspective of contractors? We’re talking first about the contracting workforce, but contractors and especially small business organizations who might not have a big contracting shop to help them navigate all of this. What should they be looking at and thinking about in this new, sort of interim period?

Emily Murphy So they need to be really carefully looking at not just their contracts, but the agencies they’re doing business with and seeing where the changes are coming. For example, if you’re an 8(a) firm, you need to be looking at the new competition rules that are in part 19. If you’re a service-disabled veteran or a woman-owned small business or hub zone company, it’s opening up the realm of what you can compete for, because things that were previously in the 8(a) program are now available if an agency chooses to take them and compete them amongst those other socioeconomic categories, they can. That’s just looking at the small business programs. They also need to be looking at the clauses. Right now, their contracts probably have the old clause matrix in them. Part 12 reduced for commercial type contracting, reduced the number of clauses by about 30%. Which clauses are changing? Which ones can they get, and what does that transition look like for them? What can they stop doing? And what do they have to change how they’ve been approaching? And it’s going to be a sort of a contract-by-contract answer. Someone’s going to deal with their flow-downs. And then we’re also hearing — I think Jason Miller, your colleague, reported on it — that there’s going to be maybe some changes to how IT value-added resellers are being treated. So that’s not even in the current regulations, but it’s something that’s sort of looming out there over the community that they that they’re going to need to be paying a lot of attention to, because limitation on subcontracting is becoming more important. Compliance with contracting terms, frankly even the move towards OTAs and CSOs and all sorts of alternative contracting, they’re going to have to become masters at a whole other set of contracting options — or award options, I should say, not even contracting options at that point.

Terry Gerton I’m speaking with Emily Murphy. She’s former administrator of the General Services Administration and senior fellow at the Baroni Center for Government Contracting at George Mason University. Emily, along with all of these changes, you’ve been a strong advocate for training of 1102s. But with all of this happening, and we have Secretary Hegseth announcing a complete shift in focus for DAU, now the Warfighting Acquisition University, what do you see as key to keeping 1102s current and keeping their mindset focused on these new ways of doing business?

Emily Murphy So we’re giving the 1102s, the contracting community, a lot of new tools. I mean, you’re seeing GSAI, the Department of War is rolling out new tools as well. Everyone’s got new tools. We’ve got new regulations, we’ve got new authorities. What I haven’t seen is anyone budgeting for the time to train the workforce on how to use these and how to use them properly. There are some very powerful tools out there and very powerful changes in the regulations themselves that give that workforce a lot more authority. But you’ve got a realignment of who the your contracting officers are going to be reporting to within the Department of War, so that they’re going to be reporting instead of up into a contracting organization, they’re going to be aligned with the program instead. At least that’s what’s been stated. We haven’t seen the reassignments happen yet. So how is that going to change day-to-day business? Who’s taking the time to sit down and explain you can now do a simplified acquisition procedure for commercial items up to $9 million? What does that look like? How do I do it? How do I do it well? If I still have to get a senior-level approval for an award above — and choose your threshold because it varies from agency to agency — $100,000, $50,000, $250,000, $1 million, what advantage is there to these new simplified tools that I’ve got if everything’s still going to go through an enhanced level of review that’s imposed at the agency level? How does that play itself out? And where should I be spending my time and prioritizing to get that best deal? There’s so much more data. How do I use it? How do I make sure that it doesn’t create a conflict of interest, also? If I’m educating an AI model, how do I make sure I’m educating it appropriately and then using it in a way that it doesn’t create its own organizational conflict of interest or its own problems with inherently governmental? How do I make sure it’s not hallucinating?

Terry Gerton Who should be thinking about that training and who should be funding it since so many of these changes are centrally driven?

Emily Murphy  I know that GSA has been thinking about this. Clearly the Department of War, with the rebranding and renaming of the BAU to WAU, is thinking about training. The problem is time. You’ve got a workforce that has been under enormous pressure to get things out the door. And training isn’t something that happens … they lost over 40 days, they lost over six weeks of opportunity that they couldn’t go and take that training. And there is a backlog of work. Training, unfortunately, gets frequently put on the back burner at that point when it needs to be prioritized first so that you’ve got the ability to actually execute better on what’s waiting on your desk. But that’s easy to say. It’s a lot harder to do when your desk is overflowing with work.

Terry Gerton Contracting shops are a lot leaner after all the DRPs and downsizing. We’ve got lots of new confusing rules. Do you anticipate that this is going to pose a problem in terms of oversight and then potentially protests as this plays out?

Emily Murphy I think it is. I think it’s interesting. I heard the other day that it’s about 25% of the acquisition workforce that’s gone. I couldn’t point to the source of that statistic, but that’s a substantial reduction at a time when we’re not seeing a reduction in contracting actions or in spending. And when you’ve got different rules and different interpretations of those rules and guidance that can be changed regularly, that doesn’t have the same effect as a actual regulation, it leaves open the possibility that contracting officers or program offices or others can be interpreting things in different ways. And a difference of interpretation is ripe for oversight. And I don’t mean that in a in a negative way; that oversight can actually help highlight where you’ve got discrepancies if it’s done appropriately. It can also, though, turn into a game of “gotcha.” And for a workforce that’s already stretched pretty thin, playing “gotcha” with them just doesn’t seem very fair right now.

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Defense Secretary Pete Hegseth’s acquisition system shakeup is being met with cautious optimism from acquisition experts who say the changes could meaningfully reshape how the Pentagon buys capabilities, manages programs and integrates emerging technologies — if the department can avoid repeating the mistakes of the past.

Stan Soloway, president and CEO of Celero Strategies and federal acquisition expert, said by and large the changes make a lot of sense — they could help to break down entrenched silos across the department’s acquisition enterprise and drive greater coordination and integration. They also expand on initiatives the department has tried before. 

“There have been a lot of reform efforts over the years — and this one both incorporates similar themes and/or reflects a natural extension of them — and all faced similar challenges in both implementation and sustainability,” Soloway told Federal News Network.

But the success of Hegseth’s reforms will hinge on whether the department can change its culture and equip the workforce with the skills needed to operate differently. Otherwise, the system can quickly revert to its old ways.

“Change is not something that happens by dictate. As they and scores of case studies have shown, there has to also be an aggressive, intentional, and holistic approach to change management, prominently including how the relevant workforces are developed. Absent re-aligning those processes, real change will remain elusive,” Soloway said.

Hegseth’s new proposed structure, Soloway said, somewhat resembles the Integrated Product Teams the department created in the 1990s as part of a major acquisition reform push. There were early successes, but they eventually faded, mainly because the workforce and culture never fully adapted.

And whether the department has the workforce to support such a sweeping overhaul remains an open question. DoD has already lost 5% to 8% of its civilian workforce since the start of the Trump administration through various means such as the Deferred Resignation Program and the Voluntary Early Retirement Authority.

“I’m excited about what [Hegseth’s] speech will do to attract the interest of high talent — folks who might want to come in and help us do this job. We’re certainly always looking for good people to come in and help. We do have some need for additional personnel, at least in my office, and I suspect across the acquisition workforce,” Undersecretary of Defense for Acquisition and Sustainment Michael Duffey told reporters Monday.

In addition, while the new structures and consolidations seem promising, there is always a familiar risk that the reforms could end up adding new layers of bureaucracy rather than eliminating old ones.

“It will take particularly strong, forward leaning leadership on both the civilian and military side as well as new levels of collaboration between and among the services and, importantly, [the office of the secretary of defense],” Soloway said.

And then the reforms Hegseth is proposing will require significant funding — but there is very little mention of resources in the strategy the department recently unveiled.

“That’s one place where the rubber hits the road,” Soloway said.

“The next big thing will be the 2027 budget submission, because some of these things require prioritization, and prioritization requires resourcing. Some of the initiatives like a focus on exportability, focus on developing multi-sourcing for parts and components — these things require resourcing. Where are they going to be in the 2027 budget submission? Because that will show how important it is for the administration,” Jerry McGinn, the director of the Center for Strategic and International Studies’ Center for the Industrial Base, told Federal News Network.

‘Speed to delivery’

Hegseth emphasized that speed will be at the center of this sweeping transformation the department is embarking on. 

“The core principles of this transformation are simple: instill the warrior ethos in the acquisition workforce and enterprise, inject a sense of urgency and relentless focus on speed by empowering those directly responsible for delivery to make and own decisions, cut through unnecessary layers to focus the [Warfighting Acquisition System] on speed, accountability and mission outcomes, and prioritize flexible requirements and resource trades to enable timely delivery at the speed of relevance,” he wrote in a memo.

The focus on speed, Solloway said, may be more critical now than ever. But speed alone isn’t the point – the department has spent the past decade chasing speed through tools like other transaction agreements  and rapid prototyping, but the real measure is whether capabilities are actually fielded.

The post DoD acquisition reform: What will it take to make it last? first appeared on Federal News Network.

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Interview transcript: 

Eric White Let’s start from the FAR overhaul perspective. They were able to get that out right before the shutdown occurred. I wanted to see what your initial thoughts were and what you’re hearing from industry folks who are going to have to comply with these new rules.

Emily Murphy So it’s really interesting, very last minute, obviously they got everything out, they wanted to meet that deadline. And I’ve got to commend the folks at OFPP, GSA, NASA, DoD, who all got that out and they worked really hard to get that out so that it would be out there before, frankly, many of them ended up getting furloughed. They got Part 15 out, Part 16 out, so they’ve got a lot of stuff out at the very last minute, and there’s a lot there to still digest. Part 16, which is type of contracts, was really interesting because it created BPAs against GWACs, which was something we haven’t seen before. Lots of sections came out with even just PDFs, and they’ve now been updated to include the actual downloadable, the actual text. But there was a lot there. One thing that contractors should be paying attention to right now is that even though these have all gone out, if you go to the Revolutionary Far Overhaul site, you’ll see that not all of them have been adopted at every agency. And so that’s something that you should be very, very aware of, depending on where they’re contracting. So, some of the deviations have only been adopted by two, three agencies. Others have more than 30 agencies that have adopted them. But when you consider how many agencies there are, that still isn’t a very large number, and so it becomes a question of, are the agencies considering these to be just adopted by, in absence of them taking any action, is it that they are still thinking through the deviations, they need to do some additional modifications to a deviation they would be doing, because these were model deviations, they were not agency-specific deviations. And then, this was the FAR Council putting these out with the intention of doing it as a deviation that agencies could adopt and start implementing right away as they started an official rule making process. And the expectation was that official rule making would start sometime mid-November. Now, I don’t know if that’s gotten slowed down by the shutdown or not. But it raises a lot of questions. You still can go on to the acquisition.gov website and give informal comments. And I would suggest anyone who’s thinking of doing so do that, but then start coming up with what they want their real comments, their official comments to be on those rules. What did the FAR Council get right? And then, where are there areas that need changes, that need some adjustments? And I trace it with both, because frequently, at least back in the days when I was actually working on the FAR Council stuff in the Bush administration, we would frequently get comments back from people only about what they disliked. They wouldn’t tell us what was good. And when you don’t tell agencies what is good, they may actually get rid of what it was that you liked in the FAR changes because they’re not hearing people step up and say, that was a good change, that’s going to make things better, please keep that. If all they hear from is people saying we don’t like anything, you never know what’s going to then survive that comment period. So it’s very important to comment, not just on what you think needs to be changed, but also on what needs to be retained.

Eric White I think any Amazon reviewer will cite the same experience if they have that. They only tell me what they don’t like. They titled it the Revolutionary FAR Overhaul. Is that, I want to get your opinion, is that an inappropriate title? Is this really revolutionary or is this a bit of labeling that we’ve seen from the Trump administration in the past?

Emily Murphy I’m not sure that they could be truly and utterly revolutionary in terms, because there were statutory constraints, but they did about everything they could within that statutory framework. They got rid of a third of the clauses that affect commercial contracting. They got rid of the reps and certs, lots of them, and it’s going to be much easier to register as a federal contractor going forward. The commercial type contracting, they broke it down into commercial type contracting for under simplified procedures versus non-commercial, so we’re dividing the world there. It’s the only place where we saw new regulations coming in. Part 15 got rid of the old discussions and replaced it with negotiations. There is a lot of change. Part 8, taking the schedules ordering procedures out of the FAR and putting them back into the GSA Acquisition Regulations, that’s pretty revolutionary. So there’s a lot in there that is very much worth noting and is going to change how agencies operate and how vendors have to comply. It should streamline things, it should speed things up. It really does push decision-making down to the lowest level possible. And it will be interesting to see, since the FAR Council noted on the website that things that require a statutory or regulatory statutory changes or changes to executive order would be addressed with the second round of this, with the official rule making. So whether there’s even more up their sleeve, if there’s going to be more that happens. But I think that they did a lot to make this fairly momentous and they did it really fast. You remember the last time they tried to rewrite Part 15, it took years. They did it this over the course of a summer while they did every other part of the FAR as well.

Eric White We’re speaking with Emily Murphy, former GSA administrator and senior fellow at George Mason University Baroni Center for Government Contracting. Let’s get to the vendors themselves. Shutdown is still ongoing, as of this recording. What are you hearing and seeing from those vendors that have long-term contracts that are coming to a close, or they’re going to need some help operating in this new FAR environment and they may not have the necessary guidance that they could use at a time like this?

Emily Murphy So the first thing I’d say to companies that are operating, have a contract that’s about to lapse, read your contract, make sure you know what’s in it. Most contracts have a provision in there — it’s usually in 52.217, sometimes dash eight, sometimes dash nine — on how to extend that work. Make sure you know which clause you have or what clauses you have, what options are there. I’m hearing some talks about taking a no-cost extension. And that’s a decision agencies and vendors are going to have to make. But the vendors should be aware of when they do that, they’re performing at risk. That there is a good chance that they may not ever have that option exercise. They may not have that ability to get reimbursed for that. They certainly won’t get reimbursed for a no-cost extension, but they may not have something happen once the government shutdown is over. So it’s got to be a business decision they’re making at that point in time. But ultimately, know what’s in your contract, know to the greatest extent possible who it is you’re dealing with at the agency, what set of rules they’re following at this point in time, and have options in a strategy you’re willing to propose to the government to make it easier for them, because whether we’re back from the shutdown by the time this airs or we’re still on a shutdown, you’ve got a very small workforce dealing with a lot of work. And the easier you can make it for them, the better it’s going to be.

Eric White We’ve seen these shutdowns now popping up every couple of years or so, usually right around this time of year. Do you see any adjustments coming down the pipeline by vendors of putting provisions into contracts or taking necessary precautions, maybe waiting until they are messing with the extensions or deadlines before they hear whether or not there is going to be one or not? Especially, like I said, around this time of year when shutdowns seem to occur.

Emily Murphy Well, the last major shutdown that happened happened December of 2018, and it went through January of 2019, so it was the 35-day shutdown, it was the longest shutdown we’ve ever had. So while in the past it was fairly, you thought right after the fiscal year there being a risk of shutdown, the fact that it was a long shutdown that didn’t start until just before Christmas, I remember because I was at GSA at the time and people had gone home for the holiday before the shutdown happened. That made it a tough time. There’s never a good time for a shutdown, so I shouldn’t say that, but that was a tough time for people to be shutdown on Christmas. I don’t know that they’re trying to time a shutdown. It’s sort of reading tea leaves or trying to do some fortune telling. I think that smart companies, though, are planning to know that government shutdowns do happen and they have a plan for their workforce when that’s going to happen, whether it’s mandatory training that they need their employees to be taking, to maintain certifications, to comply with a government requirement, whether its the upskilling of that workforce, whether it’s working on strategic planning documents or other things, they’ve thought about how they’re going to use their workforce if the workforce isn’t able to show up. We talk a lot about what’s going to happen to federal employees and will they be paid for the work for this time that they have been furloughed. The contractors don’t get paid, and good contractors try to do everything in their power to keep paying their employees, but they’re never going to be made whole for that. And there’s a limit to how long a small business and midsize business can continue to pay people to not work. And we need to be very aware that this hits the industrial base, not just the federal employee base, and that both sides of this are feeling a lot of tension right now and a lot stress.

Eric White Wanted to finish up here by getting your thoughts on the East Wing renovation happening at the White House. People were obviously going back and forth about the actual move itself, but people like you and I were probably thinking, huh, I wonder how that contract was structured. What are your thoughts, and who do you think was handling it? We’ve got really three choices, the Executive Office of the President, GSA, your former camp, or even the Park Service, as the White Houses i actually designated as a national park.

Emily Murphy It is, and what’s interesting is when I was the GSA administrator, we were looking at doing renovations in the West Wing and that very much would have been a GSA contract. It would have in the Public Building Service doing that work. The East Wing, though, probably it’s going to fall into either the National Park Service or the [Executive] Office of the President that would be doing that work. It’s not a GSA building once you hit the East Wing. It’s fascinating when you look at the White House complex. There is an agreement that tells you down to what brick along the sidewalk is managed by GSA versus by Interior versus whoever else and who’s got responsibility for what. East Wing would definitely be either the, what they call room one or would be a National Park Service.

Eric White And when a private donor enters the picture, I imagine that that can add some complications to the paperwork, as you shake in your head now for those of us not watching on video. What does that entail, and did you ever have any experience with a private donor paying for something that the government usually does?

Emily Murphy I never had that experience at GSA. When I was at SBA, SBA had a lot of gift authority and we did occasionally get sponsorships or things along those lines that would come into play. It will allow them to go a lot faster because they’ve got private funds. But my recollection is that when they did the renovation at the White House years ago under Jackie Kennedy, that that was also funded a lot through private donations. And so there is precedent for private donations going in and assisting with paying for these things. And it’ll be interesting to see when the contract details come out, and I’m sure they will, how it’s all been structured and how it’s proceeding. And you look forward to getting a chance to look through those documents someday.

The post When the FAR gets a revolutionary overhaul and the government shuts down, who’s reading the fine print? first appeared on Federal News Network.

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Interview transcript: 

Terry Gerton You, I’m sure, paid very close attention to Secretary Hegseth’s speech last Friday on the arsenals of democracy. What was your takeaway?

Stephanie Kostro Thanks so much for asking, Terry. And not only was I listening with bated breath, I was actually in the room. And for any Hamilton fans out there, it was the room where it happened. There were roughly 250 folks in an auditorium on Fort McNair when Secretary of War Hegseth rolled out his ideas for transforming acquisition. And there was a lot to be said, Terry, he spoke for well over an hour, nonstop, no questions, just kept going. I would say it’s fair to characterize the audience as a rapt. We were waiting for everything he had to say. There were three main topics he wanted to talk about. One was reforming or transforming the requirements process. The second was transforming the acquisition process. And the third was reforming foreign sales processes, and that’s including both foreign military sales and direct commercial sales. So all of that were key topics for everyone in that room.

Terry Gerton Well, let’s take those one by one and the requirements topic, of course, came up first. He talked about the end of the JCIDS and a realignment of the JROC. What did you take away?

Stephanie Kostro So the requirements process has long been an issue of great concern to industry, as well as from my time as a congressional committee staffer on House Armed Services Committee, talking about by the time you go through the several years to validate a requirement, it may actually be obsolete by the end time you roll out of that process. And so the idea of transforming the requirements process has been long anticipated. And I really appreciate what the secretary said regarding being flexible. Going for combining the requirements process with the acquisitions process so that it’s modular, that it does leverage available commercial technologies and products, that it really looks forward to getting a faster delivery times and getting weapons both developed and then deployed and in the hands of the warfighters who need them. So that was very much appreciated. No one, I think, will cry over the demise of JCIDS, but the question becomes, what rises to replace it. And, of course, the under secretary of war for acquisition and sustainment owes guidance on this issue to be released 45 days from the date of that directive, and then the military services have to come up with plans of action within 60 days. So the next two months are going to be very, very busy.

Terry Gerton All right. Part two was a reform of the acquisition process itself. The headline here is the elimination of PEOs and the replacement of them with program acquisition executives, right?

Stephanie Kostro PAEs, that is correct. So I think the other piece of this that goes hand in hand with requirements transformation is the reform and the transformation of the war fighting acquisition system, as they call it now, not the defense acquisition system. And it really focuses on the war-fighting piece of it. I think what I took away, and he said this a few times, Secretary Hegseth, and I’m going to quote him here, they want to increase acquisition risk in order to reduce operational risk. And for me that means putting flexibility in the hands of contracting officers and those in the programs to pursue modular, multi-source solutions throughout the development of a requirement, or rather the development, of a capability. And then actually to get it into the hands of the warfighter. They want to reward and incentivize speed and performance over bureaucratic processes. And that is music to a lot of industry’s ears.

Terry Gerton So a big part of that speed increases buying commercial first. Secretary Hegseth said they are willing to settle for 85% functionality and work toward 100%.

Stephanie Kostro So that was, I think, an interesting turn of phrase for him, mostly because he did say a few times to increase acquisition risk to reduce operational risk. And of course, you’re going to have to have a balance there of what is that 85% and what 15% are you going to be missing? And so I think as they move forward with embracing modularity, fostering competition and pursuing multi-source procurement, that you do want to move fast to contract. He also did mention not over-relying on the testing element. And so we’ve seen that in previous memos, particularly back in May, where Secretary Hegseth signed some memos about operational test and evaluation and streamlining that process in those offices. And so what I also found interesting is talking about putting contracting officers within the program offices too, so they can sit alongside the requirements developers and the folks who are responsible for fielding the capability, so they get a better sense of what the requirements are and how to incorporate those into contracts, leveraging commercial technologies as much as they are available.

Terry Gerton I’m speaking with Stephanie Kostro. She’s the president of the Professional Services Council. Stephanie, let’s touch on topic number three quickly, the foreign military sales reform.

Stephanie Kostro Part of this reform, or they keep saying transformation, not reformation, so I’ll key into that, transforming what military sales looks like. We’ve had lots of conversations, and I was at the Pentagon, in particularly the European office, talking with our allies and partners about how they could access U.S. solutions, and it always was a multi-year process to go from all of that pre-work where we talk about requirements to a letter of offer and acceptance at the end of it, and actually delivering the materials. It’s multi-year and it is so frustrating, particularly when companies want to compete with non-U.S. companies who don’t have the layers of bureaucracy. And so I look at the reorganization that the secretary laid out, that is to move the Defense Security Corporation Agency and the Defense Technology Security Administration, so I’ll say DSCA and DITSA, which is how we call them, over to the acquisition undersecretary. I think those are smart moves if in fact you want to speed up the fielding of compatible and interoperable equipment with our friends and allies. That said, I think it’s important to note that we need to incentivize folks in order to speed those situations up. And one thing that works really well, and it’s something that PSC has talked about in the past, is if you’re going to have an assistant secretary in a military service responsible for acquisition, and each of the military services has that individual, you need to put into their performance metrics foreign sales. They need to be measured on how well they are doing on that front as well. And that is something that I will be talking to the Pentagon folks and our CEO at PSC, Jim Carroll, will be taking to his Pentagon friends as well regarding how to actually incentivize this behavior.

Terry Gerton So this speech on Friday was the tip of the iceberg, much remains to follow in terms of detail, right? What will you be watching for there?

Stephanie Kostro I will be watching for the number of times and the depth of availability of Department of War individuals to speak with industry. This needs to be a collaboration. When you’re talking about speeding up requirements and speeding up contracting and speeding up foreign sales, you really need to talk to the industry that will be responsible for that. One thing that I did take away from the speech on Friday was an openness for profit. And I say that because a lot of times industry gets demonized for making a profit. But what happens is when you have profits, you can actually turn them back into the company and then make investments in future opportunities. And so if companies are allowed to make a profit, then they can have more money to invest in their companies and their technologies and actually move the ball forward faster. And so as we go through this, I will be looking at opportunities not only to comment formally through written comments, whether that’s through the Federal Register or the System of Acquisition Management, or SAM.gov, but also having round tables. We’ve offered to Department of War individuals, we at PSC are happy to schedule and facilitate a round table to have industry speak candidly with their government partners about how to make this happen faster, better and more efficiently.

Terry Gerton So you’d say that the speech was pretty well received by the folks in the room, then.

Stephanie Kostro I would say it was very well received as a rhetorical device. The proof is always in the pudding. The devil is always in the details. I think as we move forward, there will be more enthusiasm. Enthusiasm will grow, but it really depends on what those reports look like, that guidance from the undersecretary in 45 days, the military service plans of actions in 60 days, and how much input it reflects from industry. I think there is generally a recognition across the board, industry, executive branch and Congress, that something needs to change here. And in fact, a lot of what was in the speech reflected things that are under negotiation in the National Defense Authorization Act conference right now. And I think we are all rowing in the same direction. And I hope we stay doing that.

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Interview transcript:

Terry Gerton From printed circuit boards to drone assembly, the Army’s organic industrial base is evolving to meet future combat needs. Colonels Brett Ayvazian and James Crocker from Army Materiel Command say modernization is underway, but aging infrastructure and supply chain fragility remain key challenges. They joined me at AUSA’s annual conference to discuss the situation…starting with a general description of the Army’s industrial base.

Col. James Crocker I think the Army’s industrial base is our organic ability to repair or manufacture things that are necessary for our Army to fight and win our nation’s wars.

Terry Gerton And some of these are Army-owned/contractor-operated, some of them are contractor-owned/contractor-operated?

Col. Brett Ayvazian Yes, ma’am. Government-owned/government-operated, government-owned/contractor-operating, and then part of the further broad defense industrial base is the contractor-owned/contractor-operated.

Terry Gerton Both of you obviously have direct personal experience here and you’ve been in combat operations, you’ve served at all kinds of different levels. From your perspective now, at the headquarters of Army Materiel Command, would you say that the Army’s industrial base is adequate to meet the demands that we face both today and in future operations?

Col. James Crocker I would say that our organic industrial base is evolving.  I think it’s evolving from what we needed in the last 15 to 20 years to what we need in the future. For my experience at Tobyhanna Army Depot, we were very focused on communications electronic command systems that would come in and do repairs on those systems. Very rote system; so many trailer-mounted communication things that come through a year, you’d refurbish them, put them out of the field, and meet those requirements that are coming out of specifically Operation Iraqi Freedom and Operation Enduring Freedom. Today we don’t see that as much of a requirement inside Tobyhanna. So we see more of a move towards a technological requirement. In the last year, Tobyhanna has stood up its surface-mount technology printed circuit board manufacturing line to get after those things that are not necessarily easily available in the supply chain and try to enhance readiness that way. Focusing more on working with our PEOs and our PMs to work on the front side of the logistics cycle, like producing all of the mounting kits for all of our stuff going into next-generation C2. Things like that, I think, are where the future of our C5ISR depot are going. Because we may not be having to do overhauls that we did in the past, because of the cost are so cheap on those equipment, that there’s not really the benefit to do the overhauls.

Terry Gerton So tell me more about that in terms of how that’s changing the repair strategy for the kinds of equipment that Tobyhanna supports.

Col. James Crocker In your communication systems, you’re seeing — obviously, we’re still repairing shelters, right, there’s always going be a need for shelters that go in the back of Humvees and 5-Tons, and that’s a very vibrant repair line. But you may not be repairing all the components that go inside that shelter, right? You may just be refitting a rack, resetting up to a different configuration to meet the next requirement that the Army needs for the next evolution of what our communications architecture will look like.

Terry Gerton In the ammunition space, how are we doing there? We’re hearing a lot about ammunition inventories and supply. From your experience at Blue Grass, how are doing?

Col. Brett Ayvazian So ma’am, from the storage and distribution perspective and refurbishment at Blue Grass itself, I think we’re well-postured for where we are. However, our infrastructure definitely needs to be upgraded and updated. I mean, we’re still operating out of World War II-era facilities with just poor, old, degraded buildings. And so part of the whole OIB modernization effort is, over 15 years, to bring us up to date and up to speed to where we need to be as far as, you know, manufacture, refurbishment, storage, distribution, DMIL. So we’re on the path to get there. The last couple years that we’ve been in the OIB modernization space, the first portion of that is trying to upgrade our facilities so that we can modernize, we can get new lines, we can get robotics in there, we can expand our capacity. One of my subordinate units was Scranton Army Ammunition Plant, and they make the 155-millimeter metal parts.

Terry Gerton I’ve been to Scranton. It’s like a time travel experience.

Col. Brett Ayvazian It is. The building was built in like 1908 and it’s an old railroad car refurbishment place. When you walk and you still feel like you’re in the 1920s and 1930s. And one of the things that they’ve done there is they removed some of the older lines that they use to produce other munitions to put in additional lines to double their capacity for 155-millimeter production. So, you know, with the investments in that, and then as well as the investments where, at Blue Grass for example, they modernized one of their 105 millimeter-round refurbishment lines to additionally add on the capability to refurbish 155 millimeter as well. So we’re on the path. We’ve got a long way to go. It’s going to take a lot of time, a lot money, and we’re almost there, but we’re not close

Terry Gerton Our NATO allies really have modernized their ammunition manufacturing capacity significantly, really — 21st century capability. How does that mismatch in capacity and fabrication or manufacturing, how does that play out in operations?

Col. Brett Ayvazian Well, to be honest with you, I’m not so familiar with our allies and what their production capability and capacity is, but what I can tell you is that we have definitely played a big role in helping supply and double our production and with some of our government-owned/contractor-operated and contractor-owned/contractor-operated places, we’ve definitely expanded to be on point to double that production and make sure we meet up those needs to help not only ourselves, but our allies as well.

Terry Gerton One of the ways that we help close capability gaps in the industrial basis through partnerships, right? With OEMs, with other manufacturers, folks in various stages of the supply chain. Talk to me a little bit about how that’s playing out both in the depots and then in the ammunition plants.

Col. James Crocker Yes, I think at Tobyhanna, we had a very vibrant public-private partnership program. So I think we’re about 52 active P3s at Tobyhanna today, which is quite a bit. A lot of them for DMIL operations for communication security devices, but also some really good ones where we’re helping organic industrial manufacturers produce components of their systems to get in the hands of our soldiers. So like a P3 for being able to do weldments or do manufacturing. We’re trying to get into some space in some circuit cards up there today where we can help meet some reduced backlog for OEMs so that they can go into. So, places like that is where we really see a lot of benefit for our organic industrial base. Brett’s been working a lot with Dr. Hill on trying to revitalize P3s, or try to expand P3s inside the organic industrial base and really bring some of that greater defense industrial base cooperation together at our organic facilities.

Terry Gerton That’s got to help a lot with training the workforce as well on all the different kinds of technologies.

Col. James Crocker Absolutely, especially when we have — we’re in periods right now where we’re going through modernization. You don’t see as many refurbishments going through programs. And what that lets us do is really supplement our workforce so we can maintain that technological skill for human capital, so that when the Army does bring in the next sets of systems, those skills are still there and ready to move on to the next thing. So that’s really key for us.

Col. Brett Ayvazian Yes, ma’am, and to add onto that, one of the things that we’ve done at AMC headquarters in the last 60 days is conducting an assessment directed by the Secretary of the Army to understand where we are as far as our capability gaps, our capacity gaps, and then come up with recommendations on how to move forward. And part of that is we’ve decided that in certain places, where it makes sense, we’re going to explore partnering with industry to further grow public-private partnerships and augment our workforce. For example, one of the places, we’ve got a ton of underutilized storage capability. Ammunition bunkers, inside warehouses, outbound storage, container storage. So what we’re trying to do is partner with third-party logistics companies that have customers that are looking for short-term storage. We will partner with those companies and have them store and we will actually look to do the actual warehousing and distribution of that so it keeps our workforce fresh. And another example of something like that is we’re looking at potentially getting into partnerships with civilian companies that have heavy trucks and running them through our lines and doing some of the maintenance on it, so while it’s not doing military equipment, it’s still keeping those mechanics and those artisans still turning wrenches, still fresh in their craft, relevant and moving forward.

Terry Gerton Any other big observations from that assessment?

Col. Brett Ayvazian Well, at this point, the assessment’s not complete, ma’am, so what I can tell you is we owe an outbrief. We’ve done an interim. We owe an outbrief to the Army senior leadership, but we’re well on the way to producing this. We’ve got a backbrief here coming up to the end of the month to the Army Materiel Command commander, and then furthermore, the Army senior leadership.

Terry Gerton Got it, got it. We talked a little bit about technology coming into the depots. Technology, of course, is also coming into the end items that the Army is using, everything from unmanned systems, to satellites, to microelectronics. How are you adjusting — how is technology affecting both the work of the depots and arsenals, but also the kinds of equipment that you’re having to modernize and take care of?

Col. Brett Ayvazian I think you’ve got some great experience there with the SkyFoundry and that whole initiative.

Col. James Crocker Yeah, twofold for that. So the first point is from what we saw in the Tobyhanna workforce was actually a really large shift in what we consider floor laborers or our wage-grade employees moving towards more towards technical skills like engineers they require. Especially when you look at what Tobyhanna is doing for the future, more SATCOM-based work, managing everything from uplinks, doing testing and test environments before we deploy them on SATCOM systems. So a lot more complicated, a lot more software and digital requirements on our workforce than what we’d traditionally seen 15 or 20 years ago, for sure. And that seems to be a prevailing trend. Microelectronics, same thing. Getting into circuit card manufacturing, a lot of high-end electronics repair, and less reliance on what we would consider the old refurbishment labor in the past. Recently, AMC has taken on the initiative called SkyFoundry, and SkyFoundry is moving the organic industrial base into a SUAS manufacturing capability. The idea is over this next year to rapidly expand out five of our sites to do a distributed manufacturing model where we can produce at scale tradable UAS systems for our soldiers and support the department’s requirements. And so that’s a completely different kind of construct, different way of doing business. So instead of having a one-site set for one system, like at JMTC, we would use their advanced manufacturing capabilities to make the frames or the chassis. At Tobyhanna Army Depot we do the internal electronics and the brush motor manufacturing, and then we’d ship all those parts right over to Red River Army Depot, who would do the assembly of them, do the final test, they’ll make propellers and they’ll assemble batteries there for the final components and ship off to their soldiers. And then at Blue Grass Army Depot, where Brett commanded, we’re going to set up an innovation hub. And that’s a place where we do soldier-centered design, taking the feedback from the field, bring that in, and inform either a government design, or if it’s a public-private partnership where a company owns that design, we can give them that direct feedback. They can go to the innovator on it and say something that works great in CENTCOM, but it doesn’t work good in the Arctic. They can say, hey, we need to polarize this, get it ready for cold weather, and be able to up-degree that design for a one-off variant for what we’re going to ship up to that region, right? And we think that’s going to be very powerful for us. The folks at Blue Grass are doing a lot of great things on some AI, ML work on drones already, working with PEO-EIS. And so we’re just going to use that as a springboard to move forward. So really trying to use the strengths of our organic industrial base and not start from the ground up to move this a lot faster.

Terry Gerton That is fascinating. You mentioned AI, I’m just curious, how is AI changing the planning for Army logistics, especially at the depots? Are you doing more with predictive analytics?

Col. Brett Ayvazian So I think we’re just getting started on that. The Secretary of the Army and the under and the deputy just had recently an AI TTX, or tabletop exercise, and we’re looking and exploring options on how do we actually incorporate AI into our depots. Because again, we still operate in early this-century mode, at best, when it comes to data and data management and tracking and sorting everything that we do in our inventory and in our processing. So that’s one of the things that we’re exploring in looking at public-private partnerships to bring in companies that can help us take a look at how we might digitize the entire OIB, creating digital twins of the OIB so we can run simulations and we can factor in different data bits and data points so that we can better optimize our operations.

Col. James Crocker That’s a good point. And so for OIB modernization, one of the things we’re having to look at, it’s like SkyFoundry, and as we build in, we’ll digital twin that line before we install it, right? And so we may not be able to afford the automation in year one, but in year two, year three, we’ll have a cutout where we can go in and do automation at that point in time. You know, automate where it makes sense, keep manual where it doesn’t, right, but have those inflection points so that the line is designed to be able to do that, which is different than the past. And then once you have all that data, across the organization, based on the LOEs under Ms. Stephanie Hoagland’s OIB Modernization Task Force is to do automation of our network. So building the industrial control network necessary to control all those machines. Do all the fiber runs to make sure we have, you know, NIPRNET throughout the entire depot so that all your CNC machines, your lathes, your water jets, things like that. We can actually pull the data off there, look at it, use data-informed decisions when it comes to maintenance. Do predictive maintenance on those things and say, hey, when we saw this the last time, this is what went wrong, let’s go and order to that part now so we can fix it before it breaks, and we don’t have line stoppages. But also be able to look at capacity on those lines and say, “all right, we think we have capacity excess at Letterkenny, Tobyhanna, ship your excess workload down there,” and so Letter Kenny can execute that. Because it’s only a couple hours away, right, reducing shipping costs; they’re so close they should be mutually supportive. Those kind of decisions are what we’re looking at for that industrial control network and the ability to leverage that data. And then once we have that and we have good, clean data, then we’ll be able to use the artificial intelligence to help us make very, very risk-informed decisions.

Col. Brett Ayvazian And I can add on to that just one piece on the human workforce, human capital piece. As we digitize, as we start implementing more AI, we may not necessarily need workers on certain positions. But then that’s where we would actually retrain them and upscale them to focus on other areas so that they stay maintained, they stay operated, and we develop that workforce in that manner.

Terry Gerton I’m really glad to hear that. The AMC workforce is a national treasure, I think. I want to follow up here though, as we talked about the things that we’re doing to modernize the organic industrial base. Col. Crocker, I know you’re working with supply chain analysis right now. What are you finding in terms of the Army supply chain? Is it fragile? Does it have gaps?

Col. James Crocker There’s things we have to fix for sure, and so one of the initiatives I’ll talk about is our advanced manufacturing. So recently Lt. Gen. Mohan was granted authorities from the Secretary of the Army to qualify advanced manufactured parts, which is a game-changer for us. It lets us have another route to bring stuff in. So we’ve got, in fact at the Warrior’s Corner tomorrow, Brig. Gen. Behn from TACOM will talk about advanced manufacturing with our NIAR rep, who’s the partner we’re using on this, and so we’re trying to go fast. They qualified 60 parts in 60 days. And so the TACOM CG will talk about that, I won’t steal her thunder, but it’s a way for us to start getting parts faster, use our advanced manufacturing database so that when we get those parts, we can either get them out to a manufacturer or we produce them organically if we have the capacity to handle it, and that they’re already qualified parts that we know will work on our equipment, right? And so we’ll start with risk buckets, what’s low risk, what’s moderate risk, what’s high risk? Solve all the low risks and moderate risks and worry about the high risk later, right? And that way we can start solving readiness issues today as opposed to trying to figure out what the high risks will get us to. That’s a great initiative, one of the ways that we’re trying to help that supply chain.

Col. Brett Ayvazian And I agree in addition to that, again, our OIB workforce is so talented and they have such capability that they have been able to take a look at some of those long lead-time parts. They’ve been able reverse-engineer some things and have the capability to produce it themselves internally and like James just said, we’ve been granted the authority to go ahead and certify those parts, which gets us the parts that we need in the hands of the soldiers to fix the equipment a lot faster.

Col. James Crocker One last thing I’d bring on to that too, when you start talking about the more advanced supply chain — on the Q53 radar, one of the systems we maintained at Tobyhanna, there was a circuit card that was never intended to be repaired on it. It was made to be a disposable, supposed to be readily available, relatively low cost, and we found out because of post-COVID production lines, there’s like a two-year backlog on these things. So working with the OEM, no P3 involved, just working with Lockheed Martin, who was the OEM for that machine, they helped us figure out what it would take to do component repair on that, and so we can turn them around to five or six weeks as opposed to two years, right? And so not really a cost savings for the Army. But working with that strong defense industrial-base partner with the organic depot, it lets the manufacturer focus on manufacturing and getting the stuff they need out for the PM, but enabling the depot to be that source of support to make sure that we’re able to maintain our readiness. Things like that are important and what we’re going to have to continue to do inside our organic industrial base.

Terry Gerton Well, that seems to lead right into my last question, which is if the fight breaks out tomorrow, is the industrial base ready to scale at speed to support a major global conflict?

Col. Brett Ayvazian Absolutely. We’ve got the workforce, we’ve got the space and we’ve got the partnerships with industry to help us surge where we need to. Now again, as far as being in the modern facilities, we’re going to get there. It’s going to take us a little bit of time, but we’re ready to fight tonight.

The post The Army is racing to modernize its industrial base to stay ready for tomorrow’s fight first appeared on Federal News Network.

© The Associated Press

A veteran-owned small business in the northwest part of the country is waiting for the government to pay them about $20 million in contract invoices.

The company executive, who requested anonymity for fear of retaliation, said their line of credit will only last so much longer before the banks and other creditors come asking for payment.

“Once we hit our limit, we are stuck and the only thing we can do is work with vendors to let them know we are good for money once the government reopens,” the executive said in an interview with Federal News Network. “Once you cross a certain threshold, banks want to see certain things because you are using 80% of your line of credit. They want to know why you’re past due on your receivables, so they want to see reports. Some banks do not understand the government resell process and the fact that we do not operate as a traditional business.”

This IT product reseller, which is located in a Historically Underutilized Business Zone (HUBZone), is one of thousands of companies, both large and small, suffering an extra level of pain during the partial government shutdown.

Not only are firms facing stop work orders, reduced contract scopes or terminations of convenience altogether, but many are waiting to get paid from invoices submitted on or before Sept. 30.

“There isn’t anyone working at the pay centers to approve invoices. A lot of what we do is net 30 stuff that goes through the Invoice Processing Platform (IPP) or other payment portals. We usually submit our invoices and the government approves them, but there isn’t anyone there to do that,” the executive said. “We have one instance where we need additional information before submitting our invoice, but no one is there to give us that information, so can’t submit the invoice. In general, we are submitting invoices and seeing what happens. Then our accounting team is doing outreach after 30 days, and that’s when we are getting bounce backs from emails.”

The company executive said agencies made a lot of purchases on Sept. 30, which means not only are the invoices more than 30 days old, but the vendors they bought from are expecting to get paid regardless of whether or not the government pays first.

“That is creating problems for us in terms of having to make changes and manage cash flow,” the executive said. “The majority of the vendors we deal with know the government space, they are aware of shutdown and they are being friendly about the situation. They aren’t hounding us about past due bills, but with others we are floating the money. We have to use our line of credit or make partial payments to keep them happy.”

Interest penalties accruing

Adding to the challenge of waiting for payments when the government reopens is that vendors are entitled to interest on late payments under the Prompt Payment Act.

The Treasury Department says the interest rate for calendar year 2025 is 4.625%.  This means that the small business which is owed $20 million in outstanding invoices would be owed about $74,000 in interest as of Nov. 10.

This one example is just the tip of the Prompt Payment Interest iceberg that agencies will face when they reopen.

Tim Soltis, a former federal financial management executive who worked at the Office of Management and Budget, Treasury and the Education Department during his 25-year career in federal service, said there usually isn’t money to pay for these interest payments, so agencies will have make to cuts elsewhere.

“They may have to cut overtime or cut hiring to make room for these payments,” he said. “At Education, I ran both the financial and contracting side and budget and contracting work hand-in-hand in many cases. The budget has to be adjusted before an invoice is paid and it must draw from the same appropriation line. With the shutdown happening at the beginning of the fiscal year, agencies probably have money to pay the interest, but they will have less things to spend on during the year.”

Soltis said over the last decade through IPP or other electronic payment processing systems, the government has basically solved the issue of late payments to contractors, which is why Congress passed the Prompt Payment Act in 1982.

He said a lot of agencies may have to figure out how to calculate and pay the interest because it’s been so long since they’ve had to do it.

When is the invoice accepted?

Eric Crusius, a procurement attorney and partner with Hunton law firm, said he rarely hears from clients about prompt payment issues. But contractors need to be prepared to claim interest when the government reopens.

“If the invoice was submitted before the shutdown, then it’s supposed to be applied automatically,” he said. “I’d recommend first sending an email to the contracting officer about the interest that is due, and then lodge a claim with the contracting officer if they don’t accept it. Unless the contract has some other terms and conditions, usually there is a seven-day invoice acceptance period no matter if the government is open or not. Now, the government could make the argument that there wasn’t anyone there to receive the invoice or product or service. I’d recommend to make a claim and argue it should be automatically accepted.”

The issue of when the government “accepts” a company’s invoice is one of the biggest, and most concerning, questions that vendors need to understand.

Soltis said an agency accepting an invoice is usually dependent on how the contract is set up.

“There are specific terms in the contract for invoice acceptance and that is what would drive it. But in general, the contracting officer technical representative or contracting officer usually is the one that has to accept an invoice. And legally if the government doesn’t respond within seven days, it’s considered constructive receipt,” he said. “But a lot of times it’s later than that, and a lot of contractors don’t want to get a customer upset over when an invoice is officially accepted.”

Soltis said the issues become more complicated with products where there needs to be someone at a receiving dock or in the agency to accept the package, validate it and match it to the invoice.

In fact, Dell Technologies and its partner Carahsoft said in an email to a vendor supplier, which Federal News Network obtained, that the order placed by the supplier would be on hold until they receive confirmation that the agency customer will be on site to accept the delivery.

Vendors should document all expenses

Solstis said another challenge will be that agencies will face a backlog of invoices when they return to the office.

“Contractors who are holding their invoices could be sabotaging themselves. What people will tell you is to submit it and let the government sit on it. Then you can say you submitted it and the government delayed paying. But if you hold your invoices, then you can’t claim interest,” he said. “When the government reopens, I would have a meeting with all contractors and go through their issues to make sure we are on the same page. It’s a two-step process. First, what invoices need to be paid? Second, how do you get the contractors whole? Which ones need to get paid with interest? That will become a budget issue because you have to figure out where the money comes from, how to move it around and how to prioritize payments.”

The industry executive said they really don’t know when the clock starts for invoices on Sept. 30 or those submitted during the shutdown.

“If no one is there to accept the invoice, does it start when the government comes back?” the executive said. “Our success rate on getting prompt payment penalties is very small. The majority of the time the agency says they accepted invoice on specific date and that is when the clock starts. Sometimes, they will wait until day 28 or 30 and reject the invoice, which starts the clock over again. I feel like DoD takes advantage of rejecting it and forcing us to resubmit it, and then they have more time to accept it and then 30 days to pay it.”

Crusius said this is why it’s imperative for contractors to log their expenses and costs associated with their contracts during the entire shutdown.

“They can file claims when they need to, and with certain contracts there are ongoing expenses even if they have tried to pair them down. A lot of that will be dependent on whether they received a stop work order or had their contract scope reduced or received a termination for convenience,” he said. “Contractors have to be diligent in writing down their costs so they can try to collect them.”

The post Shutdown brings reemergence of prompt payment penalties first appeared on Federal News Network.

© Getty Images/iStockphoto/Morakot Kawinchan

While delivering capabilities at speed is at the core of the Defense Department’s acquisition system shakeup, the department’s top acquisition official said the Pentagon is not “mandating speed.”

“We’re continually going to be dependent on the judgment of program leaders who are executing these programs to understand where does the need for speed balance with the risk that we would undertake to cost and/or performance of the system,” Michael Duffey, undersecretary of defense for acquisition and sustainment, told reporters Monday. 

Last week, Defense Secretary Pete Hegseth announced a series of initiatives to overhaul the department’s acquisition process as part of what he described as a broader war on Pentagon bureaucracy. Key changes include prioritizing a commercial-first approach, cutting red tape, increasing competition and bringing more commercial firms and nontraditional contractors into the defense space and transitioning program executive offices (PAO) to portfolio acquisition executives (PAE), which would give these new portfolio officials greater authorities and responsibilities for requirements, resourcing and acquisition.

Most of the changes Hegseth unveiled last Friday are similar to measures currently making their way through Congress.

In the Nov. 7 memo, Hegseth emphasized that speed will be at the center of this sweeping transformation the department is embarking on.

“The core principles of this transformation are simple: instill the warrior ethos in the acquisition workforce and enterprise, inject a sense of urgency and relentless focus on speed by empowering those directly responsible for delivery to make and own decisions, cut through unnecessary layers to focus the [Warfighting Acquisition System] on speed, accountability and mission outcomes, and prioritize flexible requirements and resource trades to enable timely delivery at the speed of relevance,” he wrote in the memo. 

Duffey said while speed to capability delivery is key, given constant budgetary irregularities, his focus is on making the most of the department’s budget — optimizing the system to deliver the best capability at the greatest speed for the lowest cost.

“Those are the parameters we operate in, and that’s what we intend to empower the workforce to make the best judgments going forward,” Duffey said.

Portfolio acquisition executives, Duffey said, will be the ones responsible for striking the right balance between speed and risk, deciding when to accelerate and possibly cut corners to achieve speed or when to delay program delivery.

“We’re hoping to provide the flexibility to the portfolio acquisition executives to be able to move money around and to trade requirements. There’s certainly no question about the emphasis on speed but recognizing that there’s a need for judgment and flexibility in that triangle of cost schedule performance,” he said.

“One thing we’re doing around here nowadays is we’re now saying schedule performance cost instead of cost schedule performance just as a way of emphasizing the fact that speed is priority amongst us,” he added.

It’s unclear whether these portfolio acquisition executives will be the ones making that call — Duffey said the department is still working out those implementation details. “I think what you’ll find is there will be circumstances where they need to have a broader conversation, and there will be circumstances where the threshold will allow them to make that decision on their own,” he said.

Along with Hegseth’s “Transforming the Defense Acquisition System into the Warfighting Acquisition System to Accelerate Fielding of Urgently Needed Capabilities to Our Warriors” memo, the department also released the acquisition transformation strategy — five pillars laid out in the plan include expanding the industrial base; empowering the acquisition workforce to deliver at speed; introducing greater acquisition flexibility through cutting regulations and processes; developing high performance systems; and improving lifecycle risk management. 

Hegseth’s memo already directed the services to begin carrying out a number of key initiatives that emerged from those five pillars.

One of the changes the department seeks to implement is replacing what it calls “redundant and excessive” studies like the Analysis of Alternatives (AoA) that the strategy says delays the start of programs. The process, which takes place early in the acquisition process and is mandated by Congress, is designed to compare operational effectiveness, suitability and life-cycle cost of alternatives. 

The strategy calls for modifying those processes and providing “more rapid and impactful assessment of commercial solutions, existing technologies, and competing prototypes as a preferred approach to the extended document analysis.”

“I think that we can learn more from experimentation and prototyping than we can from an analysis of alternatives. We recognize there may be exceptional circumstances, specifically when it comes to large-scale weapon systems where we may need to do a study of what an alternative might be. But our intent is a heavy focus on prototyping and experimentation as the best learning and best connected to the art of cutting-edge technology,” Duffey said.

The post Speed is central to DoD sweeping acquisition reform, but not a ‘mandate’ first appeared on Federal News Network.

© DoD photo by EJ Hersom

The Pentagon is restructuring the chain of command within its acquisition system, replacing the program executive offices that have long formed the backbone of the Defense Department procurement system with “portfolio acquisition executives” that will be more empowered to make decisions and more directly accountable for performance, Defense Secretary Pete Hegseth said Friday.

The changes are part of a wide-ranging overhaul Hegseth said the department will make as part of what he framed as a war on Pentagon bureaucracy amid a need to accelerate the procurement system, increase competition, use commercial technology as DoD’s default option, and eliminate excessive regulations.

“Speed to delivery is now our organizing principle,” Hegseth said Friday during a 70-minute speech at the National War College in Washington. “It is the decisive factor in maintaining deterrence and warfighting advantage. If our warfighters die or our country loses because we took too long to get them what we needed, we have failed. It is that simple. The sense of urgency has slipped too much, and when you look at what we face, we have to recapture it.”

Commonality with existing proposals

Much of what Hegseth unveiled Friday mirrors reform proposals that are making their way through Congress or that have been suggested by independent reform panels. The rollout also follows a pair of executive orders President Donald Trump issued in April, directing a reshaping of federal acquisition processes.

The move to a more portfolio-centric approach to acquisition, for example, is a feature of both the House’s SPEED Act and the Senate’s FoRGED Act, and the Senate bill also uses the “portfolio acquisition executive” moniker for a reimagined PEO role.

Hegseth offered few details on what DoD’s own conception of the new role would be, but said further guidance would be published within the next 180 days. One key theme, he said, would be empowering the new portfolio officials to make decisions without waiting for bureaucratic approval processes.

“We will break down monolithic systems and build a future where our technology adapts to the threat in real near time. Contracting officers will be embedded within program teams and accountable to program leaders, shoulder to shoulder with our engineers, operators and warfighters who can provide critical, real-world user feedback to the engineers,” he said. “If the mission is not successful, there will be real consequences. We will ensure accountability by extending PAEs’ tenure to be longer than the current PEO service times. We will leverage taxpayer dollars in a more accountable, flexible and deliberate manner to maximize their value across capability portfolios. We will shift funding within portfolios’ authorized boundaries swiftly and decisively to maximize mission outcomes. If one program is faltering, funding will be shifted within the portfolio to accelerate or scale a higher priority. If a new or more promising technology emerges, we will seize the opportunity and not be held back by artificial constraints and funding boundaries that take months or even years to overcome.”

Wartime Production Unit

Meanwhile, Hegseth said DoD is standing up a new organization called the “Wartime Production Unit.” It will be a successor to the existing Joint Production Acceleration Cell, but will be led by a “deal team” that the secretary said would be empowered to make its own agreements with vendors who conduct work across multiple portfolios.

“The deal team will reinforce our contracting workforce, enabling them to work with newly empowered PAEs to negotiate with vendors based on a broader perspective of the vendor’s total book of business within the department, rather than through the lens of a single program, creating leverage and incentives not previously applied,” he said. “This deal team will craft financial incentives that drive contractor performance, demanding on-time delivery of the weapons our warfighters desperately need. It’s about faster negotiations, better results and a commitment to complete transparency and cooperation between the government and our industry partners.”

That approach, Hegseth said, is not just a pilot program — and the department is actively looking to expand the unit and staff it with people who have expertise in the defense business.

“Many talented operators are already on board at the Pentagon, former industry executives who are serving our country to drive success. We call them Business Operators for National Defense, and I encourage those listening who are interested to reach out if you have the skills to contribute to the defense industrial renewal we are embarking on. This may seem like an obvious change, but it’s new for our department to empower world-class operators to help drive necessary change from the Pentagon to industry,” he said. “It’s a fundamental shift in how we arm our warfighters. We are committed to dominating the modern battlefield, and that domination starts with a wartime industrial base focused on execution and operational success.”

Industry’s role

Still to come, Hegseth said, is new guidance that will aim to incentivize contractors to build their own production capacity, let DoD offer clearer demand signals, and create more stable funding streams for multiyear contracts.

As part of that effort, he said, the department would need to ask Congress to alter some existing rules that constrain DoD’s ability to move money between accounts and programs, though he did not specify the exact types of flexibility the department would seek.

“This will build on the great work already done to improve the [planning, programming, budgeting and execution] process and how CAPE and the comptroller interact with Congress,” Hegseth said. “We commit to doing our part, but industry also needs to be willing to invest their own dollars to meet the long-term demand signals provided to them. Industry must use capital expenditures to upgrade facilities, upskill their workforce and expand capacity if they don’t, we are prepared to fully employ and leverage the many authorities provided to the president, which ensure that the department can secure from industry anything and everything that is required to fight and win our nation’s wars.”

And Hegseth warned that companies that aren’t ready to adapt themselves to the department’s vision for a speedier system with more “magazine depth” could soon find themselves with fewer contracts.

“For those who come along with us, this will be a great growth opportunity, and you will benefit,” he said. “To industry not willing to assume risk in order to work with the military, we may have to wish you well in your future endeavors, which would probably be outside the Pentagon. We’re going to make defense contracting competitive again, and those who are too comfortable with the status quo to compete are not going to be welcome.”

DAU is now WAU

But Hegseth said the changes he wants can only happen if DoD achieves a culture change within its own acquisition workforce.

He said he would begin that effort by overhauling the department’s Defense Acquisition University, including by renaming it the Warfighting Acquisition University. He said it would be the “launching pad” for the acquisition workforce and would try to instill in its members a “transformative and warrior mindset.”

“The patriotic men and women in this audience who architect, develop and procure the world’s most lethal and capable technology must be unleashed to deliver the arsenal of freedom faster than we ever have before,” Hegseth said. “The Warfighting Acquisition University will prioritize cohort-based programs combining experimental and project-based learning on real portfolio challenges, industry-government exchanges, and case method instruction that develops critical thinking. And rapid decision making — no more sitting in classrooms learning about failed processes of the past. Our acquisition system is only as good as our workforce.”

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