Drawing on his 40 years experience in the defense and contracting industry, Dr. London reminded the audience of over 75 high-level procurement professionals how contracting had already undergone significant changes and challenges. The key to conquering these challenges and creating lasting value for the American taxpayer, according to Dr. London, was having the government and industry work as partners. Highlighting current procurement issues, such as organizational conflicts of interest and budget cuts, Dr. London explained how not fully utilizing the government-industry partnership created losses and problems for both sides. Dr. London also noted that government contracting would always face new challenges. However, by working together as partners, they could meet the country's challenges that neither partner could solve alone.
The full text of Dr. London's speech follows.
Good morning, everyone. Thank you to NDIA for inviting me here this morning. From that kind introduction, you'll know that I've been in the contracting world for quite some time - since 1970, in fact! I won't claim to be an acquisitions expert, but I have opinions and impressions based on my many years of industry experience.
The topic today is managing in a tumultuous acquisition environment. Even today, the ongoing possibility of a government shutdown hangs over us. I can still clearly remember the last government shut down in the 90s. In my time, however, I have seen the government and industry take on many challenges and opportunities in the contracting arena together. We went from sole source contracting to competitive bidding with the Competition in Contracting Act - or CICA - in the 1980s. We saw the growth of outsourcing when the government shrank in the 1990s, followed by a post-9/11 boom in contracting. Now we're addressing issues - from conflicts of interest to inherently governmental functions - and in-sourcing to "doing more without more."
I believe that today's demanding acquisitions environment is simply a part of the evolution of government contracting. We have an opportunity now to work together to proactively assess and define what contracting will be in the future. And that's something that I want to emphasize. We are in this together and we always have been. Because government contracting is a partnership - two sides of the same coin.
The importance of our partnership is undeniable. To meet the country's growing needs, the government looks to the private sector to deliver the best service or product at the best value. The government also captures this value through the outsourcing of commercial activities that are best performed by the private sector.
The U.S. government is the world's largest consumer, spending more than $500 billion a year on goods and services. The Defense Contract Management Agency (DCMA) alone authorizes disbursements of approximately $155 billion a year - over half of which goes to services.
Competition for contracting opportunities pushes companies to find the most effective ways to operate, and deliver goods and services for government customers. This process of innovation is how value is created for both contracting partners and taxpayers alike. And it's also how the best emerges. That's why our goal at CACI is to "be the very best"!
Government contracting is symbiotic. The partnership works best when we work together and falters when we don't. To illustrate this point, let's look at another kind of contracting - General Contracting.
Let's say we want to build a house. The architects decide what kind of house to build based on the homeowners' requirements and then they draw up the plans. They select a builder, the prime contractor - through a competitive process - and hand over the blueprints. The builder puts their team of subcontractors together - carpenters, roofers, plumbers, HVAC, electricians, etc. Now it comes time to build the house. But challenges arise. Skilled employees aren't readily available. Permits are delayed. Specs can change. Builders and their subs have questions, but the architects are also constrained. They're trying to keep costs down and avoid excessive changes and delays. So if the architects and builders aren't communicating or talking past each other, what kind of house will you end up with? Not one a homeowner will want to live in, that's for sure.
The same goes for government contracting. If we don't work together, what will we be giving the American taxpayer? If we work together, we will get things built, instead of ending up in shambles.
Why is this lesson relevant to today's topic? Tumultuous times bring challenges, stretch resources, and test patience. But isn't that always the case? The key to making it through the tough times is having a solid partnership all of the time.
How do we do this? In my experience, I've found three principles that define successful partnerships. The first principle is that partnerships are "Empowering."
How do we empower the partnership? First, we commit to it. We commit to the partner, the client, and the process. At CACI, that commitment is built into our corporate culture - a corporate culture based on integrity and focused on treating customers ethically and making their priorities our priorities. At CACI we take pride in our commitment to "quality service and best value" for our clients. The government contracting partnership is empowered when everyone is onboard.
Second, empowerment happens with communication. Just as the home construction analogy shows, the biggest problems arise when you don't engage with each other. Some people may think that "arm's length contracting" is the way to go. Maintaining professional boundaries is a must. But we can't afford to set up walls. Government contracting is complex. Better options may arise. Requirements and specs may have to be changed. Deliverables may have to be modified. Questions will simply need answers. What kind of answers will you get at arm's length?
That's why I've been pleased to read comments by Mr. Gordon encouraging the acquisition workforce to talk with industry representatives because it helps contractors understand an agency's expectations. The government contracting partnership is empowered when we communicate - and I say better products and services will come to market.
Finally, empowerment comes from collaboration. It's not just about talking to each other, but working together within appropriate parameters. And these parameters should be enabling, not disabling.
Look at the new regulations concerning organizational conflicts of interest that are in the works. From what we have seen so far, rules are being set up in a way that encourages agencies to try to avoid OCIs - rather than encourage the use of mitigation plans or strategies. It seems that the government feels more comfortable if contractors stayed more specialized - or "picked our major" - so to speak.
But by trying to predict and prevent any and all problems, I am concerned that more restrictive OCI regulations will force companies to either sell lines of business or simply forego parts of the work they are doing today. This would suppress competition and eliminate many of the innovative capabilities that could be offered. I think the government will lose out under this approach.
The same goes for questions that are currently being debated over "what are" and "what are not" inherently governmental functions. There are limits to what the government can do, and there are limits to what contractors can do. But these functions vary across projects and agencies. There is no fine line, but there is a good balance that fosters collaboration.
So the first principle of successful partnerships is empowering each other. And empowerment happens when partners commit, communicate and collaborate.
The second principle of a successful partnership is "Sharing." What do we share? We share responsibility. That means being accountable and open with each other. It also means stepping up when help is needed and owning up when something goes wrong.
Take self-reporting requirements, for example. I know contractors are working diligently to adhere to the new rules. For example, to adhere to these new rules, CACI has introduced a new Contract Enterprise System that improves information flow for self-reporting across our core business systems and contract teams. But we have to take care that we don't go too far in the name of transparency. Revealing proprietary business information - of course - can affect a company's competitiveness.
We also share risks. For as much as we know about contracting, with established procedures and subject matter expertise, there are still many variables at play. Contracting risks are best mitigated when they are addressed by both partners. Unfortunately, we've seen an increasing imbalance here. The Carter memo, as the recent DoD Better Buying Power initiative is commonly called, outlined ways to reduce contracting costs for the government. These initiatives seem to shift a lot of contract risk to industry. Shifting risk does not reduce risk. In fact, shifting risk without attempting to understand it will likely increase the risk for both the government and the contractor.
For example, one of the ideas in the Carter memo is to reduce contract performance periods from five years to three years. The government believes that this will enhance competition, but it actually changes the contractor's business model. How? Shorter contracts can mean a different return on investment that can put the contractor in a costly, ongoing re-compete mode. It's also a smaller opportunity, reducing what the contractor can deliver. Contractors will be forced to propose solutions and pricing that will make the risk worthwhile.
The Carter memo also pushes for fixed price contracts without pushing for better definition of contract requirements and specs. Without a well-defined structure and agreed-to performance expectations, fixed price contracts shift significant risk to contractors.
Both partners in government contracting suffer when risk is piled on one or the other. I believe that the government and contractors would both benefit if we worked together to understand and mitigate contract risk.
Finally, we also share the rewards. There is a misperception that contractors are "awash" in profits. While announcing changes to how contracts are awarded, President Obama, in March of 2009, proclaimed that "the days of giving defense contractors a blank check are over." Personally, in my 40+ years in this business, no one ever gave me or CACI a blank check. Perhaps I was out of town that day!
Contractors stay in business because they are able to continuously provide successful solutions and products to government clients. We also know that the ultimate client is the American taxpayer - and that includes us. That why at CACI, success is only defined by customer success!
Contractors also lose when projects fail. Here's an example. The Office of Management and Budget instituted a review of 26 federal IT projects. As a result, two have already been terminated. The first cancelled project was a claims processing system for flood insurance at Homeland Security. Can you believe that after seven years and $40 million, the system didn't work, didn't have a dedicated program manager or proper evaluation metrics? I suspect there were some poorly defined requirements as well.
The government's losses are obvious. For contractors, a failed project means our employees' time and efforts are being wasted and are not available for other projects. It can also mean cost overruns and financial losses. Not to mention the damage to a contractor's reputation for being involved with a failed project. Waste and inefficiency is always bad - for both partners.
So successful partnerships are empowering. And partners share responsibilities, risks, and rewards.
The last principle of successful partnerships is something I've already mentioned today - that partnerships are always "Evolving." Government contracting has come a very long way. In fact, the private sector-government partnership is as old as the country itself. In my family history, I found that one of my patriot ancestors was a government supplier in Halifax County, Virginia to the Continental Line (Army) during the American Revolution. He was a supplier of "300 pounds of beef and four forages." I guess you might say I stayed in the family business!
We've come a long way since then, and we have lots further to go! Partnerships like ours are long-term and dynamic. I think it's appropriate to re-examine how things work on a regular basis. That's why being proactive and making change work for us both - is essential in the government contracting partnership.
First, partnerships evolve through lessons learned. There is already a breadth of experience that we can draw upon in the contracting world. Just about every project and collaboration has a "lessons learned" requirement at the end. But those lessons are usually left on the page.
For example, I recently came across a summary of lessons learned from a collaboration between the government and two large defense contractors on a joint appraisal of software development processes. Some of the main lessons learned were "communicate early with all parties involved," "convey the process to all stakeholders," and "establish clear lines of responsibilities and roles early on." The main take-away of the report was: "We recommend that a similar approach be used on other contracts to promote a joint understanding of process maturity, program risk and trust." The date of these recommendations was January - 2004. I guess we're still trying to learn these lessons seven years later!
Identifying lessons learned and actually learning the lessons are two different things. That's why at CACI, we have program called Excellence+ that measures customer satisfaction. More importantly, its purpose is to learn what we can do better.
CACI's program provides project teams and management with analyses of customer feedback in quality, business practices, and personnel performance, as well as time and cost management.
My hopes for the next stage in contracting are that both government and industry will make learning a collaborative and iterative process.
Speaking of learning, evolution also means professional development. Professional development in contract management has also been making great strides. The number of government contract management professionals and training opportunities is on the rise. In FY09, there were only 106,000 people in the federal acquisition workforce to handle $500 billion in annual purchases. The 2011 federal budget has some $158 million set aside to strengthen the federal acquisition workforce. In the defense sector alone, the goal is to increase the acquisition workforce by 20,000 by 2015. This is great news as the growth in federal contracting expenditures has greatly outpaced the growth of the acquisition workforce.
I am also a big proponent of having role models. I had the fortune of working with some amazing military and business leaders early in my career and I learned lots from them. I believe such relationships are vital to developing acquisition management as a long-term profession. As a result, at CACI, we recently launched a company-wide mentoring program, which has been enthusiastically embraced by our contracts and procurement staff.
On both the federal and contractor side, we are seeing a rise in the number of mentoring programs. I have heard of acquisition mentoring initiatives at the Department of Agriculture, as well as the Federal Acquisitions Fellows Coalition, providing opportunities to recent college graduates to enter the acquisition management field.
Career-oriented contract management professionals are essential to the evolution of government contracting. They will be the ones to direct government into better opportunities, lead through tumultuous times, and foster professional ties in our partnership.
Finally, the evolution of the government contracting partnership must include innovation. There are efforts to create a cultural shift in federal acquisition to embrace and reward innovation. In 2008, the Department of Veteran Affairs opened a Center for Acquisition Innovation with the intention of creating "risk takers." The General Services Administration an Excellence in Acquisition award to recognize government employees who have had a major impact on improving the acquisition process. At CACI, our Innovation and Service Excellence initiative was started to capture and implement new ideas from our employees.
While there are numerous innovation initiatives on both the government and contractor sides, collaborative efforts where innovation would likely be more bountiful are lacking.
So successful partnerships are ones that continually evolve through learning, growing, and innovating.
To some of you here today, having partnerships that are empowering, sharing, and evolving are admirable goals. However, some procurement professionals might prefer to hear about more tangible and specific steps they can take in difficult times, like these. And that's alright, too.
Even the possibility of a government shutdown happening - the worst-case scenario - doesn't mean everyone will stop working or that we'll stop working together. For example, DoD alone has over 324,000 prime contracts at over 18,000 contractor locations. Many contracts are already funded and will continue to be performed. That means we'll continue to manage projects, people, and contracting relationships. And we'll have to work together to address problems that could potentially arise from other parts of the government shutting down.
And even for those projects affected, government teams and contractors will have to work even harder and closer together to catch up on lost time when the shutdown ends. In all cases, having a good partnership is a must.
The point is that there will always be new challenges on the horizon. The current acquisitions environment does have some people and projects in limbo. But it's nothing we haven't faced before. And focusing only on the short-term will neglect the opportunities to make long-term improvements in government contracting.
Why is this so important? Norm Augustine, the former Chairman and CEO of Lockheed Martin, may have put it best we he said, "The issues facing the nation and the world, increasingly transcend the ability of either government or industry to solve alone." This means doing it together.
In contracting, we need to work together, not against each other. We share the same goal - creating value for our constituents - cost-effective programs for government and for companies, and a reasonable return for shareholders. And we can both share the demands and gains from our efforts. Let's not forget:American industry is made up of American people. We are partners, not opponents - and certainly not adversaries. The way I see it, there is much that can be accomplished if we work together. Because that's what a partnership is all about.