All about the money

A commander’s guide to managing contracts

During a yearlong tour in Kuwait, where I came into regular contact with a wide variety of units at various stages of managing their contracts, I interacted with soldiers, sailors and airmen who were working diligently to glean the best possible results but suffered from a consistent lack of training. Frequently, the acquisition process for contracts was treated as an additional duty because of the circumstances in which units found themselves. This often led to situations where, despite everyone’s best intentions, contracts were awarded that didn’t fit the need, solved only parts of the problem or provided goods and services already available in the government system.

I observed a vast degree of contracting that directly affected almost every government person in the area of interest and all our missions. Despite this immense degree of importance, it became apparent that very few decision-makers truly understood how to properly and legally work with the contractors in their midst. The consequences of these rifts were as expensive as they were unnecessary. Given that our current operations are likely to continue well into the future, and I am confident contractors will be supporting our operations throughout this new type of warfare, it is crucial that the government begins to expand our contract training. The farther up the ranks one goes, the greater their interaction with contracts will be and consequently so will the impact of their errors.

Meanwhile, here are some lessons learned that I hope will fill some of the gaps.

IT REALLY IS ALL ABOUT THE MONEY

The level of patriotism that exists in the hearts of contractors is irrelevant to their company’s requirement to maintain at least minimum operating cash flow. Failure to cover its operational costs leaves a contractor unable to either sustain its operations or fulfill its contract with the government. This is not an inherently greed-driven system, but it is inherently efficient, driving people to achieve their best and rewarding them according to their abilities. The competitive nature of a free market system is what guarantees the government access to fair market rates for all our needs, but only if we use it. Far too often we fail to fully utilize this advantage because of impatience, poor planning or sole sourcing for convenience.

The common distaste many military personnel express toward this system is due to a perceived ruthlessness that cares not for rank or country, but only for dollars. It appears greedy and distasteful, but it is in many ways a form of bloodless warfare. The most efficient companies beat out the less efficient, which leads to the best allocation of resources and labor humanly possible. By maintaining the competitive fight among companies, the government supports a system that can continue to provide us the technological edge and at a rate that offers the best long-term sustainability options. Thus, it is in the interest of the government to sustain a healthy industry/services market capable of effectively competing to earn the taxpayers’ money. This principle applies equally well in how we develop foreign markets and their local businesses through helping to mature the market capabilities and improve professionalism.

Money is also the tool that modern commanders have at their disposal to keep contractors marching to the desired beat. This tool is wielded via the stick-and-carrot philosophy. Contracting sticks come in terms of penalties or payment withholdings because of performance failures that are tracked through the quality assurance surveillance plan (QASP) and implemented by the contracting officer. In application, these consist of the government quality assurance (QA) person observing a deficiency (e.g., vehicle maintenance not being performed to contractual standards), submitting a verbal or written report listing the exact deficiency to the contracting officer (CO), the CO then notifying the contractor of the deficiency and a specified time period to correct it, and the contractor either correcting the deficiency or failing to do so and risking a breach of contract (incomplete work means incomplete payments).

Government representatives never have to accept substandard goods or services, and not doing so can create additional indirect cost for the contractor in terms of extra labor hours, multiple shipping fees, performance schedule shifts, etc.

CONTRACTING CARROTS

Contracting carrots come in the form of incentive or award fees earned by the contractor, again through quantified performance recorded in the QASP. Incentive fees are matched to a level of effort and/or quality potentially achieved by the contractor. This technique works best in a contract that has set schedules and/or consistent performance that are easy to quantify and observe. This helps eliminate any disagreements on whether a standard has been met and a fee earned. This can be a powerful tool for quality control since all companies will work hard to collect every potential penny, but it also requires well-trained, experienced and contractually savvy government oversight personnel.

The larger the contractor’s effort, the greater the number of QAs required to ensure proper application of the contract. The award fee can be established as a quick and flexible tool for command influence. In essence, an annual award fee budget is established and can be written into a contract to be applied in a quantifiable but discretionary manner. An example could be the transportation of certain goods (e.g., ammunition) that are determined to be higher priority in the short term because of shifting battlefield needs. The contractor can be told (by the CO using the commander’s intent) that delivery of goods to certain locations within a difficult but feasible schedule will result in a potential award fee, the percentage of which earned will match the percentage delivered on time and still meeting contractual standards for acceptance (i.e., in usable condition). The greater the award fee the greater the motivation of the contractor to earn as much as possible.

By tightly monitoring the performance of the contractor, a commander can justify the proper application of the appropriate control measure (the way the contract is written will provide more or fewer options). The very insinuation that payments might be reduced can send a company’s management into overdrive to ensure every standard is met. Commanders must learn that these are tools for “commanding” contractors and the contract is the “UCMJ” that holds their feet to the fire and/or the award system that can grant them “medals” when appropriately earned.

A developing factor rearing its ugly head is budgetary restrictions. This has not been emphasized nearly enough in our training programs, nor has it been reinforced in the field that is flush with supplemental budgets, but the winds of change are blowing that money away. As budgets tighten but mission requirements remain, everything will get leaner, and the contractors already know this. They realize that the size of the pie is going to shrink and the only way to maintain current revenue streams is to expand the size of their slice. This will lead to an extremely cutthroat environment for the existing contractors. Some will react to this by making their operations more lean to maintain a highly competitive edge. Some will resort to tactics such as emphasizing capabilities that they will not be able to provide at the lowest bid price with the hope of baiting the government into a deal and then increasing costs later. Our best defense will be records of past performance (especially in cost-projection accuracy) and our own capability of market analysis. Past performance is best derived from the unit receiving the goods/services; the market research falls into the realm of the local contracting office. If we go into the selection process well-prepared, we can benefit from the fierce competition and reward those companies that have proven to work efficiently and honorably with us in the past.

Cost, schedule and performance are the three prime elements that create the balancing act of contracting. To understand their interacting relationship a commander must view these elements in zero-sum terms. If you focus efforts on one element, it will come at a sacrifice in at least one other. It is vital to decide which of these is the most important to successfully accomplish each separate mission’s purpose. A commander’s most important role during contract planning is to stack these three factors in order of priority. We always want the lowest-priced, technically acceptable deal to keep the cost element fair and equitable. As long as contracts are openly competed, we can be confident that Adam Smith’s invisible hand of the free market will consistently yield this result. It is only when you are faced with limited competition or budget constraints that cost becomes a higher priority. As budgets shrink, cost will rise to the top and commanders will be left with schedule and performance as their primary influence options.

If you want it badly, you will get it badly. The schedule is the one factor that generally becomes the top priority in the absence of a command decision. It is vitally important for a commander to weigh and balance the real need versus desire for the date of execution. Premature execution of a contract frequently leads to purchasing supplies and services that only solve parts of the problem. This in turn will generate a need for further contracts to cover the remaining gaps and these contracts must go through the same lengthy planning processes. Thus, by trying to fast-track the planning process, a unit can find itself running multiple iterations, which ultimately extend the life cycle execution time beyond what could have been achieved by doing it correctly the first time.

You get what you pay for, so make certain you take the time to figure out what performance you really need before laying your money down. Everybody wants to give the troops everything that they need to win the fight. It is the commander’s responsibility to separate the need from the desire.

COMMAND AND CONTROL

The contracting officer is the king of the contract, period. This isn’t based on bureaucratic maneuvering in the halls of the Pentagon; it is federal law enacted by Congress. Consequently, no commander can order a contract to be performed in a certain way or at a certain time or even direct contractors to perform any acts (short of emergencies) without exposing themselves to the legal risk of an unauthorized commitment. The only way to be successful in this realm is to either learn the intricacies of the system well enough to earn your own warrant or build a contracting team you trust to manage this effort based on the commander’s intent and the CO’s standards.

Contracting officer representatives (CORs) are vital to responsiveness and oversight. These are the commander’s eyes and ears on the performance field. These soldiers or government civilians are primarily subject matter experts (SMEs) in the field of performance for services being rendered, supplies being delivered or construction being performed. In simple purchases, there may be only one inspector/acceptor assigned to receive the goods, but large-scale service or construction contracts can contain a wide multitude of CORs depending on the complexity involved. Waiting until the contract has been awarded to involve these SMEs is usually too late. When possible, they should be engaged in the early planning to help shape the contract’s statement of work and/or performance work statement to ensure what is produced fits the commander’s needs. This is especially acute when renewing and/or re-competing long-term contracts.

To better understand the parameters of their assignment, every COR must be thoroughly trained. COs have the final call on minimum requirements and frequently set some level of baseline training. There are resident and online courses available that commanders can assign that will increase this knowledge base. Austere deployment locations can prove to be challenging places for both access to training and the time away from duties required to attend. Predeployment COR training for everyone who might regularly deal with contractors is strongly recommended.

Every commander in the Army should possess a solid understanding of the strengths and limitations of the different types of COR training available. Which type you choose needs to reflect the magnitude of the oversight needed. If your personnel are only going to be accepting shipments, then the online course (from Defense Acquisition University) may suffice. If they are going to be actively monitoring contractors working on a multimillion-dollar maintenance contract, the resident course approved by the CO will probably be barely adequate.

Developing a strong relationship between commanders and COs is vital to combining the government oversight efforts. In the case of small contracts or frequent single purchases, commanders often will never even meet the COs unless they make the time to visit their offices. A simple walk-through visit to conduct a meet-and-greet opportunity can go a long way in enhancing this relationship. The additional step of inviting members of your local contracting office to participate in appropriate team-building and/or training events can truly cement the foundation. This becomes particularly important when working with joint contracting offices or with large-scale contracts that require habitual relationships. Good lines of communication can assist tremendously in ensuring that the contracting actions work as productively and efficiently as possible.

If you find yourself working with large contracts that span multiple years and tens of millions of dollars in value, developing a close relationship with your CO becomes pivotal to a successful command tour.

The primary tool CORs use is the quality assurance surveillance plan, which will specify exactly what is expected of the contractor and exactly how the government will observe, track and record any success and/or failure (that which gets inspected well gets done well). The CORs simply follow the specifications of the QASP and build their tracking tools based on it. This type of work should be familiar to government personnel as we regularly inspect everything we do, and whenever possible, the QASP must be written to use existing tools and techniques. The one primary difference is how we go about corrections. CORs are generally not authorized by the CO to communicate directly with the contractors for any purpose short of their assigned oversight. Rather they are the CO’s eyes and ears and must collect as much detailed and accurate data as they possibly can. These data are then compiled into regular (usually weekly) performance reports and sent to the CO. If there is a large work force of CORs, it is possible for the CO to appoint oversight responsibilities to senior government CORs (another excellent opportunity for direct coordination between COs and commanders). These intermediaries can be the normal supervisors of the CORs and will compile all the reports of the CORs they are responsible for, then submit the combined data to the CO. For contracts that last an extended period of time, it is also important to track cumulative performance of the contractors not only to determine that they are meeting the basic standards of the contract, but also to verify or deny claims of exceptional work that can lead to awards.

REQUIREMENTS DEFINITION

The most important and yet frequently neglected part of contracting is clearly defining what you really need. In some cases, this is legitimately next to impossible given the chaotic nature of battlefields. More often than not, it is simply neglected because of perceived time constraints. To help avoid this problem, a commander can utilize the military decision-making process concepts and apply them to the acquisition requirements refinement process. The amount of energy expended on a contract’s development should correlate to the size and impact of the contract, but even simple purchases can become problematic if not well-defined. For example, purchasing enough flashlights for an infantry battalion seems like an easy and straightforward process until only 100 day-glo, yellow, 16-inch, brittle, plastic flashlights that are only powered by shaking for 60 seconds arrive. Taking the time to think through the basic requirements for all contract actions will help to ward off such wastes of valuable mission time and tax dollars. Garbage in generates garbage out.

Many contractors have prior military experience that can be very useful in helping us achieve our missions. In some cases, former military personnel introduce themselves by their retired rank in the hope that it may influence active military personnel to act in the retiree’s interest. This creates a balancing act that requires continuous attention by the CORs and leaders to try to provide the best options for both parties. It is imperative for both sides to understand that contractors have neither rank nor authority over government personnel. There is nothing wrong with exchanging war stories or renewing friendships, but it is the duty of all government personnel to be good stewards of the people’s money first and help old buddies succeed in retirement second. Any potential conflicts of interest must be identified to the commander. The primary control measure is limiting decision-making where even the potential for influence is present.

MAJ. DAVID BIGELOW is the United Launch Alliance Transition Team lead at the Defense Contract Management Agency. The views expressed here are the author’s own and do not necessarily reflect those of the Army or Defense Department.