WASHINGTON — After an attempt failed in October to change how the Pentagon awards payments to industry, the department’s top acquisition official is ready to try again.
Ellen Lord, undersecretary of defense for acquisition and logistics, told reporters Monday she intends to push forward with a revamped version of the progress and performance payments plan, but this time will seek greater input from industry than the proposed rule that emerged over the summer.
“I think we went out with some ideas we had, perhaps a little prematurely, and we had not done the series of meetings that many of us wanted to do,” Lord said of the now-scuttled proposed rule, which would have changed how companies receive their cash flow based on performance measurements.
“So what we’re trying to do is be very thoughtful and get all stakeholder input before we come up with a proposed rule and go into the formal rule-making process,” she added.
The proposed rule from Lord first emerged late in the summer, and in a Sept. 5 interview with Defense News, she laid out the rationale, saying: “I believe the lifeblood of most industry is cash flow, so what we will do is regulate the percentage of payments or the amount of profit that can be achieved through what type of performance they demonstrate by the numbers.”
However, three major trade groups — the National Defense Industrial Association, the Professional Services Council and the Aerospace Industries Association — objected to the proposal. And on Sept. 21, Rep. Mac Thornberry, R-Texas, and Sen. Jim Inhofe, R-Okla., the chairs of the House and Senate Armed Services committees, sent a letter to Deputy Secretary of Defense Patrick Shanahan, calling the proposal “fundamentally flawed" and asking that it be rescinded and revisited.
On Oct. 1, Shanahan withdrew the proposed rule, later indicating to reporters that the A&S office should never have put forth the rule in the first place.
“They had an escape,” Shanahan said Oct. 4. “We encourage employees to go as fast as possible and make as many changes as feasible. So when there’s a failure in the process, we correct it.”
Speaking to reporters this week, Lord took the blame for the incident, saying: “I take responsibility for any failure in A&S, and I don’t think we had done all of our homework before we went into the rule-making process. I hold myself accountable, and I’m very involved with a wider team to make sure that we take everything into account.”
This time around, she is launching a “listening tour,” including a recent meeting with NDIA on the issue.
“We have multiple stakeholders. It’s not just industry — from my point of view, I’m interested in hearing what the investment community wants as well. There’s also a [Government Accountability Office] report coming out. We want to be informed by that as well,” Lord said. “We are looking and making sure we have checks and balances before anything goes into a rule-making process, and that we at the A&S staff level discuss that in detail.”
Lord did not go into detail about what the new rule could look like, but reiterated a long-standing belief of hers — that the Pentagon needs to gather as much data as possible on its programs, including making sure industry and the department are using the same terminology when tracking data, in order to create a set of metrics showing how program are progressing.
Having those metrics, Lord says, would allow the Pentagon to create scorecards for each program through which planners can see where each stage of the process should be, both on time and cost, and adjust accordingly. But there, again, the A&S team intends to have a dialogue with industry about how to make that work.
“We have a whole series of levers right now we use with industry, and we want to make sure we’re using those to our best mutual advantage, and we don’t want to overexercise industry on reporting if it doesn’t make sense and create value for both of us together,” Lord said.
Aaron Mehta was deputy editor and senior Pentagon correspondent for Defense News, covering policy, strategy and acquisition at the highest levels of the Defense Department and its international partners.