Contract Management Lessons from Performance of the Defense Acquisition System 2015 Report Summary: Part Three

3-8-20216 | by Dominic Shaw

This article represents the third and final entry in this series of summaries regarding the Department of Defense’s (DoD) 2015 performance report. Part one focused on cost performance of Major Defense Acquisition programs (MDAP’s). Part two focused on contractual spending and contract management, specifically between 2008 and 2014. This final article will attempt to wrap up two more important points in the discussion of DoD’s contract use: Contract-level Trends and Prime Contractor Analysis.

Contract-level Trends:

As we approach trend analysis, there are three points which should be noted:

  1. Only major contractors were used for all of the currently active MDAP’s.
  2. Inflation has already been calculated.
  3. Outliers have already been removed through multiple statistical tests.

 

With these points in mind, one can approach the statistics provided with confidence.  The first statistic in this analysis is that of price growth.  This statistic indicates how much an institution is spending on research and development, but does not necessarily reflect how successful the research will prove.  This being said, the contracts which have been started since 2009 have generated price reduction more generally than contracts which began before that year.  It is likely that the price reductions, were caused by the downward trend in cost-over-target.

 

In addition to a downward trend being seen in cost-over-target, there was a significant downward trend in contract cycle time. This is a positive trend because this allows the DoD’s operational capabilities to function at a much faster rate and allows for analysis in a much more timely manner. The problem with these shortened cycles, however, is that they could imply that the DoD is relying more heavily on less-complex systems, which could weaken their technical superiority.

 

There was no statistically significant results for either change in margins or work-content growth.

 

Prime Contractor Analysis:

Like the analysis of contract-level trends, the DoD has opted to remove outliers from their analysis of prime contractors.  The analysis provided is of course independent of work-content growth, focusing instead on cost growth.

 

Analyzing the performance of prime contractors proves difficult because of the great differences in cost-over-target provided by each contractor.  One big reason for this due to these contractors often use bidding strategies that do not reflect an unbiased estimates of project cost.

 

As far as the performance of these prime contractors goes, Lockheed did consistently have the highest cost-over-target no matter what percentile of contract was being analyzed.  On the other end of the spectrum, Huntington-Ingalls had, consistently the lowest cost-over-target.

 

When cost-over-target is compared with schedule growth rates, it seems that the higher cost-over-target rates were being translated into higher schedule growth rates. This is seen when Lockheed had very high schedule growth, the second highest of all of the prime contractors who were being considered.  Likewise the schedule growth of Huntington-Ingalls was very small.  Raytheon, however, had very intermediate cost-over-target, but had significantly large schedule growth, higher even than Lockheed.  This anomaly is likely what placed Raytheon firmly in DoD’s top tier of superior suppliers.

 

CLICK HERE for part 1

CLICK HERE for part 2

 

For more information see the link below:

http://www.acq.osd.mil/fo/docs/Performance-of-Defense-Acquisition-System-2015.pdf