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Future Air Force Contracts Likely Will Include Firm Price Caps
By Dan Parsons



The Air Force is considering placing price caps on major procurement programs — that when reached— will force Pentagon buyers to rethink requirements and make tradeoffs in favor of affordability, a senior civilian with the service said Sept. 26.
 
Richard W. Lombardi, deputy assistant secretary for acquisition integration with the office of the assistant secretary of the Air Force for acquisition, said defense officials are giving more weight to long-term affordability as they lay out a series of spending plans that will be published in coming months.
 
“We have in the past launched off on programs without thinking about long-term affordability,” Lombardi told a gathering hosted by the Air Force Association in Arlington, Va. Acquisition officials must consider “what we are willing to pay for something and what we will stop funding in order to pay for it,” he added.
 
Lombardi manages the acquisition staff organization charged with planning, managing and analyzing the Air Force's research-and-development, and acquisition investment budget.
 
Those ideas will likely be enshrined in the programs objective memorandum for fiscal years 2015 to 2020, which is currently being drafted, he said. Submissions to the office of the secretary of defense for that spending plan were due Sept. 23.
 
Industry continues to pitch worthwhile products and services to the Air Force, but companies must realize that moving forward, the service and the Defense Department at large, has a limited amount of funding. It therefore must shoehorn worthy programs within what will be strict budgetary boundaries, he said.
 
“We keep getting new ideas from industry, which is good,” Lombardi said. “But we have to be mindful there is no new money. So if we're going to launch off on something new, it's going to come at the expense of something we already have.”
 
The answer could be firm price caps on development and procurement programs, he said. The caps are new and have not been attached to any specific line items or future acquisition strategies yet, but will likely be included in most future spending plans, he said.
 
“We are putting caps on programs and when we reach that we will go back to the requirements community. We can't afford to allow programs to continue to spin,” he said.
 
“We will conduct a program-by-program look” and ask managers “at what point would you be willing to turn away from this program if you got to a certain point? Then you go back through the requirement process to see if there are things that you can trade off.”
 
Lombardi would not specify which programs would be capped, but said that certain priority procurement efforts would be funded at the expense of those deemed less important.
 
Lt. Gen. Christopher Bogdan, the Air Force’s program executive officer for the F-35 Joint Strike Fighter, the previous week mentioned a similar strategy for future contracts with prime contractor Lockheed Martin and Pratt & Whitney, which makes the aircraft’s engine.
 
The recently negotiated contract for a seventh lot of aircraft is set at a fixed price. If the companies exceed the contractual funding level, there is no risk to the Air Force, Bogdan said. All F-35 purchases going forward will be so worded, he said at the Air Force Association’s annual conference in National Harbor, Md.
 
The notion of placing affordability caps on certain programs is being driven by the Defense Department’s Better Buying Power 2.0 acquisition strategy, which promotes flexibility and accountability for cost overruns that have been a staple of past Pentagon purchases. Gone are the days when vague product pitches are greenlit without harsh scrutiny and cost analysis, Lombardi said. Requests for proposals coming out of the Pentagon are being minutely parsed before industry is even invited to pitch products, he said.
 
“Tough decisions are being made,” Lombardi said.
 
Another top priority is developing a viable strategy for acquisition of cyber-related systems and weapons, Lombardi said. The cyber-realm, which is under Air Force auspices, develops at such a high speed that the Pentagon’s acquisition apparatus cannot keep pace, he said.

“We need to get cyber within the budget cycle,” he said.
 
The Air Force needs to spiral develop cybersystems instead of buying large “Big Bang” systems that dramatically advance capabilities, he said. For such a dynamic and quick-paced realm, incremental and swift acquisition is best, he added.

Photo Credit: Thinkstock

Comments

Re: Future Air Force Contracts Likely Will Include Firm Price Caps

1. So this is like Nunn-McCurdy but this time we mean it???

2. So how do they justify continuing to run F-35 SDD as an unlimited time & budget project after 12 years?  F-35 is destroying our force structure with it's cost overruns and the O&S cost are only going to make the situation worse in the future.

3. And why does Bogdan think a similar strategy will work on future F-35 contracts when the DoD has created a monopoly in TACAIR with Lockheed and Pratt? 
Weaponhead at 9/26/2013 2:40 PM

Re: Future Air Force Contracts Likely Will Include Firm Price Caps

And how does this track with the latest OSD Acquisition Report http://breakingdefense.com/wp-content/uploads/sites/3/2013/07/OSD-Acquistion-Report-2013.pdf  ??  I came into the industry in the early 1980's and fixed price contracts were all the rage.  They were miserable failures.  It seems all the people that learned that lesson are gone....
WeaponDevelopmemtRealist at 9/26/2013 11:28 PM

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