WASHINGTON — Senate Armed Services Committee Chairman John McCain has sent a letter to Defense Secretary Ash Carter expressing concern about a proposed Pentagon acquisition regulation that he said he believes could tie up in red tape views as red tape for commercial firms seeking to do business with the Defense Department. in a letter sent yesterday to Defense Secretary Ash Carter.
But Frank Kendall, the Pentagon's acquisition chief, said Wednesday today at the ComDef conference in Washington that the regulation is not meant to hinder be at odds with bringing commercial industry entering into the defense world's fold and that he's open to adjusting the draft regulation based on comments such as those from the Arizona Republican.
At issue is a regulation that McCain writes wrote would "likely deter privately held start-up companies from offering their products and services to DOD, because it would impose cumbersome and excessive bureaucratic requirements on these firms to provide detailed cost data for precisely the types of solutions that DOD needs."
McCain wrote he fears the requirement would "create a major disincentive for high-tech commercial firms to venture into the development of innovative new defense capabilities" and would require these firms "to build entirely new accounting systems just to do business with DOD."
The senator accused the Pentagon of sending "a signal that DOD has little interest in realistic commercial acquisition practices and will continue to operate under its archaic, defense-unique, cost-based oversight system." He urged the Pentagon to rescind the proposed regulation.
For Kendall, the rule is far from set in stone and was drafted in response to a National Defense Authorization Act requirement that the Pentagon establish new rules and procedures for buying commercial items. The regulation in question is to ensure the Defense Department is getting "a fair and reasonable price" for commercial items, he explained.
"The rule is about buying commercial items and this has been a long-standing discussion," Kendall said. "We buy a lot of parts ... and vendors of those parts would like them to be considered commercial, which means that we essentially don't ask for cost data."
Kendall said normally, if there is a competition for the parts, that procedure usually allows the Pentagon to get the best price; but if there's no competition, the DoD would have to determine if it's getting a fair price another way. If there's no way to determine if a price is fair, Kendall added, that's how "we get $600 hammers."
Yet, Kendall noted there is some room to refine the proposed rule.
"I think the rule is very general. I would like it, frankly, to be more specific and I'm working with my contracting people on how to do that."
For example, there is one provision in the rule that has received some "fair criticism," which attempts to define a commercial business, Kendall said. "It says, that if ... more than 50 percent of the sales have been commercial, then it's commercial," he said, and some believe that the definition is meant to be applied "rigorously" and that "is not the intent."
Additionally, Kendall said asking for a company's classified cost data would be "a last resort" and that the Pentagon simply wants information that shows they are getting a reasonable price. "There are a variety of ways to do that," he said.
The Pentagon's acquisition branch is also setting up a group of people at the Defense Contract Management Agency, according to Kendall, whose job it will be to help those that are doing the purchasing assess whether they are getting fair prices.
Kendall stressed the Pentagon would take any input on the proposed regulation "seriously" and that it wants to "strike the right balance with industry on this."
Email: jjudson@defensenews.com
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Jen Judson is an award-winning journalist covering land warfare for Defense News. She has also worked for Politico and Inside Defense. She holds a Master of Science degree in journalism from Boston University and a Bachelor of Arts degree from Kenyon College.
