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John DelGreco starts each morning at 0600 at the Defense Contract Management Agency (DCMA) Raytheon Tewksbury Contract Management Office (CMO). He’s been doing it a while. January 2014 represented the start of his 27th year as a contract price/cost analyst at DCMA. Over the course of his career, he has seen many changes within the agency and the pricing career field.
In the early 1990s, with mandatory personnel reductions, the pricing function began its slow move away from DCMA and toward the buying commands. When DelGreco first started at DCMA, 12 price/cost analysts and six cost monitors assigned to the CMO were performing pricing work. By 2008, only two price/cost analysts remained at the CMO. In April 2009, however, this was all set to change as Ashton Carter was appointed the Under Secretary of Defense for Acquisition, Technology and Logistics.
Affordability to the Forefront
In June 2010, Carter released a memorandum for all acquisition professionals, titled “Better Buying Power: Mandate for Restoring Affordability and Productivity in Defense Spending.” He articulated a vision of program affordability by targeting unneeded programs and activities, as well as the goal of “delivering better value to the taxpayer and improving the way the Department does business.” One of the ways to accomplish this was to place greater emphasis on pricing at the major defense contractors. This core capability had become lost with all of the downsizing and reorganization within the Department of Defense (DoD). Pricing analysis at the major defense contractors became one of his highest priorities, and he wanted to reform the way the Pentagon bought goods and services. Coupled with a dynamic political environment, affordability became the axiom and even more critical to DoD’s future success.
The Budget Crunch
As the DoD focused on making acquisitions more affordable, political realities intensified that need. In August 2011, President Obama signed into law the Budget Control Act, creating the Joint Select Committee on Deficit Reduction. By design, this committee was responsible for producing deficit reduction legislation. If it failed, the law would trigger automatic spending cuts called “sequestration.” The intent of the legislation was to act as an enforcement mechanism. If the committee failed to reach an agreement, the automatic spending cuts would go into effect.
That is exactly what happened. No agreement was reached by the deadline, and the automatic cuts went into effect (after an initial delay) in March 2013. The DoD was hit with half of the required cuts in discretionary spending. Its share of the bill was approximately $980 billion over the next 10 years.
In 2011, Shay Assad became director of defense pricing and set out to fulfill Carter’s articulated “affordability” vision. He instructed DCMA to begin a restructuring focused on providing better pricing capability for the DoD. What was his stated goal? “DCMA should know more about the contractor’s proposals and business systems than the contractor.” This was DCMA’s opportunity to level the playing field when it came to negotiations.
DCMA wanted to create a dedicated cadre of personnel focused on specific work, including rates, indirect costs, cost monitoring, cost accounting standards/disclosure statements and other items. The solution was to align the divisional administrative contracting officers (DACOs) and cost monitors from the CMOs with the Cost and Pricing Center corporate administrative contracting officer (CACO). Besides aligning them within the same reporting chain, this action lined up the CACO and DACO work on a corporate structure basis and created consistency for all companies across their different business segments. The next step in embodying the affordability mandate was establishment of the integrated cost analysis teams (ICATs) at the major defense contractors.
Establishing the ICATs
The plan set four criteria for the ICAT implementation. First, the selected contractor locations had to have more than $3 billion in the general-and-administration business base. Second, there had to be an existing, in-plant DCMA presence. Third, a DACO was required on site. Fourth, there had to be significant current, or potential, pricing work. Based on these criteria, a total of 10 ICATs were established (eight in 2012 and two in 2013). The companies and locations were Bell Helicopter, Boeing St. Louis, Boeing Philadelphia, General Electric Evendale, Lockheed Martin Fort Worth, Lockheed Martin/United Launch Alliance Denver, Northrop Grumman/General Atomics Redondo Beach, Raytheon Tucson, Sikorsky Stratford and Raytheon Tewksbury.
According to the ICAT vision statement, the ICATs aim “to be the leading experts in complete proposal analysis, enabling our partners to achieve contract objectives.” The specific purposes of the ICAT are to (1) provide complete proposal analysis, (2) support customer proposal negotiations and (3) perform continuous evaluation of the contractor’s estimating system.
The ICAT is composed of technical experts and business advisors who perform in-depth, integrated price and technical reviews and analysis of the contractor’s cost/price proposals. The objective is to provide the customer and its procuring contracting officer (PCO) with a supportable and sustainable starting position for negotiation.
The ICAT can deliver full pricing and technical analysis on any proposal or contract; however, the primary emphasis for ICATs is support for major proposals ($250 million and above). The Defense Federal Acquisition Regulation Supplement (DFARS) audit thresholds ($10 million for fixed contract types and $100 million for cost type contracts) play an integral role in coordination efforts with Defense Contracting Audit Agency (DCAA). While the expectation is that DCAA will perform an audit on the proposals over the DFARS threshold, the ICATs perform technical analysis and assess the rate recommendations on those proposals as well, arming the PCO with an all-encompassing report.
Requesting DCMA assistance is straightforward. The customer receives a proposal in response to a request for proposal and then submits a request to the cognizant DCMA administrative contracting officer (ACO) asking for field pricing/technical support for their negotiations. The ACO then coordinates with the ICAT, and analysis begins.
The goal is to provide the government negotiator the best proposal analysis based on the customer’s requirements. If given enough time, the ICAT can provide any level of support needed to assist the PCO. Conversely, if the schedule is the determining factor, the ICAT can tailor the scope to meet the timeline dictated.
Support for Customer Proposal Negotiations
The proposal analysis the ICAT provides establishes a “supportable” negotiation starting point. However, the ICAT’s charter doesn’t end when the analysis is done. Another primary focus is to provide the PCO and customer with a “partner at the negotiation table.” The ICATs are designed and staffed to directly support negotiations.
ICATs have a unique insight beneficial to government negotiations. Unlike other members of the System Program Office integrated product team, the ICAT has immediate, on-site, contractor access. The team can review contractor financial, supply chain and estimating systems for actual costs and labor hours. The team can verify that the ICAT proposal analysis performed is supportable and sustainable. The ICAT can further enhance negotiations by delivering real-time cost-modeling updates as the talks progress.
Ultimately, the goal is to put the government negotiators in the best position to get the warfighters what they need—on time and on cost. Both proposal analysis and negotiation support represent how the ICAT can directly benefit the PCO or customer.
Continuous Evaluation of Contractor’s Estimating System
As part of the annual DACO support, the ICAT is charged with several overarching requirements that affect multiple proposals. Here are some examples:
Incorporate cost-estimating relationships (CER) reviews into every analysis. A CER is a mathematical equation in which a cost is expressed as a dependent variable of one or more independent variables. The ICAT analysis ensures that the equation’s underlying data is accurate, applicable and current.
Review of the contractor’s independent research and development (IR&D) efforts. The IR&D is a company expense for future research efforts. The ICAT certifies that the projects have a valid government benefit, are appropriately categorized, and are compliant with DFARS 231.205-18.
Evaluate and assess the value, implementation and potential savings of contractor-proposed cost reduction initiatives through monitoring and tracking.
Develop and maintain historical data on negotiated and actual costs to execute the business base review for forward-pricing rate proposals.
Table 1 summarizes the DCMA lines of service that ICATs provide in support of Better Buying Power 2.0. The bottom line is that ICATs seek to control costs throughout the product life cycle by providing expert proposal analysis, supporting negotiations and continuously evaluating the contractor’s estimating system.
Table 1. ICAT: DCMA Lines of Service Supporting Better Buying Power 2.0
|Better Buying Power Initiative: Achieve
DCMA Lines of Service: Cost and Pricing ServicesSupport Negotiations
Better Buying Power Initiative: Eliminate
Reduce Cycle Times
|Better Buying Power Initiative: Control Costs Throughout Product Life Cycle
DCMA Lines of Service: Contractor System ReviewsEvaluate Business Systems
Support Divisional ACO
Better Buying Power Initiative: Incentivize Productivity and Innovation
The mandate for affordable programs will not be going away anytime soon. As shrinking budgets continue to be stretched across more and more programs, the emphasis to find savings at all levels will dominate the conversation. As current Under Secretary of Defense for Acquisition, Technology and Logistics Frank Kendall put it, “The affordability analysis piece gets the programming community to sit down and figure out what kind of cost constraints they are going to have to live with.” DCMA will continue to emphasize its renewed focus on improved technical and pricing capability to support the Better Buying Power 2.0 and Affordability initiatives. The ICAT is the embodiment of that improved support.
Charlie Williams, former DCMA director, stated,
Nothing the department is doing today in the procurement and acquisition business has as much focus as support for the affordability initiative. The re-building of DCMA’s pricing capability is at the heart of our support to this initiative. The stand-up of these ICATs ensures expert pricing assistance is available to support the Department’s major defense program teams and decision makers.
As John DelGreco prepares to leave for the day, he realizes that change is still coming, but the focus has shifted. He is now part of the Raytheon Tewksbury ICAT. For him, history has come full circle. The ICAT now consists of seven engineers and eight price analysts with a wide range of experience. This entire team is dedicated to providing the needed proposal pricing and technical support. It is the physical embodiment of DCMA’s vision to support the Better Buying Power 2.0 and Affordability initiatives.
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