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How To Build Affordability Into Defense Contracts

In today’s economic situation, the affordability of weapons systems development projects must be taken into careful consideration. Already, defense contracts are being drawn up with this in mind and many defense contractors are incorporating affordability initiatives into their program development plans. Recently, in an address to defense industry executives, the Pentagon’s chief weapons purchaser gave the clear message that affordability will be the new mantra in new weapons programs like the SSBN-X, the ground combat vehicle and long range strike capabilities weapons.This is because the days of over-sized defense budgets are long gone. As long as the funds gushed in the last two decades, there was plenty of waste and abuse of these budgets. Now, the defense industry will, like any other competitive industry, get “incentivized” to bring in more productivity and efficiency. This is a good thing, as the security of our nation depends on this efficiency.

Defense contractors will now have to think about adapting to the same changes that made the prices of products and services gradually drop in the private sector. Carter’s line of reasoning – “Your computer costs less every year, why not defense weapons?”This new approach is certain to lead to a lot fewer cost-plus contracts and fixed price contracts will be more encouraged. The fact that the government has agreed to cut the planned defense budget over 12 years by $400 billion is sure to affect defense contractors.There are four basic ways to build affordability into defense contracts. The first is to initiate better management of costs and affordability through improved understanding and management of requirements, schedules and incentives. Two aspects of an affordability initiative are product improvement and process improvements. By adapting new manufacturing methods or materials to enhance the final product and by incorporating changes in detailed production plans, a new workflow can build affordability into defense contracts.

Another way of building affordability into defense contracts is to promote greater competition as well as getting rid of redundant capabilities and more direct acquisition management at all levels. This will also constitute removing obstacles to competition. Negotiation of all single bid offers through cost or price analysis and also through non-certified data will go a long way towards encouraging competition. Evaluation criteria and the time taken for evaluation also must be improved so as to promote real competition. Competition can also be enhanced by requiring more frequent reevaluations of knowledge-based services.