Pentagon changes aimed at focusing more on costs

WASHINGTON (Reuters) – The Pentagon is stepping up efforts to get the best prices possible for up to $400 billion in weapons and services it buys each year, but officials insist they are not trying to slash contractors’ profits.

“This isn’t a war on contractor profitability. This really is trying to figure out how do we pay less for the goods and services that we buy,” Shay Assad, a top aide to the Pentagon’s chief weapons buyer, told Reuters after a news conference to discuss an organizational change that left him with the new title “director, defense pricing.”

“The reality is we need to step up our game across the board, and so that’s what we’re doing,” Assad told reporters.

He said unlike profit margins, overhead costs would be fair game. “That’s cost. How do we get that out?”

Assad has been director of defense procurement and acquisition policy since 2006. His deputy will now assume that title, freeing Assad to focus even more on negotiating the best possible contracts with Pentagon suppliers.

Assad has already spent many hours poring over a proposal submitted last month by Lockheed Martin Corp for a fifth batch of 35 F-35 Joint Strike Fighters, along with the contracting officer in charge.

He said the Pentagon was still closely examining the proposal — which came in higher than the past deal — and probably would not be completed until late fall. Asked if he was frustrated about the offer Lockheed submitted, Assad said simply, “Let’s see what we actually end up paying.”

The Pentagon’s contract negotiations with Lockheed stretched months longer than expected last year as the two sides wrangled over moving to “fixed price, incentive fee” terms and the amount of risk the company would have to assume.

Assad said his job was not to tighten the screws on contractors, but to help equip the service’s acquisition experts to achieve the best possible deal for taxpayers.

He said he would review all sole source acquisition deals valued at over $1 billion, and some others worth more than $500 million. He would also be involved with pricing for competitive deals, but another official would oversee those negotiations.

Over the next 18 to 24 months, for instance, the Pentagon is revamping its Defense Contracts Management Agency and building a database that will help contract officials compare their programs with those of other services.

Currently, it could take many months for contracting officers to obtain that comparative data on labor costs and other items in contract proposals for services, spare parts and big weapons deals.

The agency has already hired 300 pricing analysts as part of the initiative, Assad told reporters.