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

3-4-2016 | by Dominic Shaw

In our first article on the topic, we began to discuss the Department of Defense’s (DoD) 2015 report and Contract Management. The first article focused almost entirely on cost performance of Major Defense Acquisition Programs (MDAP’s). Due to the length of the initial report, we have split the summary down and will move on to contractual spending, which is the avenue through which the Department of Defense acquires most of its defense purchases.

Contractual Spending:

Contractual spending is an important aspect of this report because contract-level measures often provide the first signs of how DoD contracts with industry partners will perform. These contract-level matters are almost always seen at aggregate program levels. It is also easy to remember the importance of contracts when one remembers that it is through contracts that must of the execution of DoD’s MDAP’s are run. With this in mind, we will move onto specific details of how DoD’s contracts have been working over the past few years.

One of the first statistics to know is that 2016 base President’s Budget (PB) requested budget totals $209.8 billion for Operations and Maintenance (O&M). This is important in a discussion of contractual spending because a large percentage of the O&M budget is to be spent on contracts for goods and services. These types of future budgets often have a large margin of error, but they do show general patters of budgetary ups and downs. For specific details on all of the DoD’s contract obligations that total at least $3000 information can be found at The Federal Procurement Data System—Next Generation, an organization that records product service codes used for tracking federal contracts.

The DoD categorizes their contractual spending between products and services. Statistics show that in 2014, 55% of DoD’s contractual spending went to services while the remaining 45% was in products (these numbers do have some debate as Research Development Test and Evaluation [RDT&E] can be considered as a service or as the product that is being developed).

A breakdown of these contractual expenditures between 2008 and 2014 shows some obvious trends. While at the beginning of this timeframe, in 2008, vehicle spending (aircraft, watercraft, and land vehicles) was by far the biggest expenditure totaling over $70 billion with that number decreasing drastically to under $50 billion in 2014. Vehicle spending remains the largest product expenditure only rivaled by sustainment spending.

When contractual service spending is broken down, knowledge based services has remained the highest priced category since 2009.  In 2008 RDT&E was the highest priced category at just over $55 billion.

The performance of all of this spending is determined by how efficiently these contracts are acquiring value compared to the costs incurred by taxpayers. Because most of this analysis is simply statistical, it will not be deeply covered in this article. Suffice it to say that through general trends in available statistics and through institutional outcomes that the DoD is incessantly trying to improve their policies to increase positive outcomes.

CLICK HERE to read part 1

CLICK HERE to read part 3

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