Senate Debates Defense Policy Bill Under Veto Threat, in Part for Acquisition Reforms

At a whopping 1,700 pages awaiting more than 300 planned amendments, the defense authorization bill now on the Senate floor drew a veto threat from President Obama on Tuesday in part because of acquisition reforms, many of which have support in the contracting community.

In its statement of administration policy, the Office of Management and Budget criticized the Senate Armed Services Committee-passed version of the fiscal 2017 National Defense Authorization Act  (S. 2943) for provisions that would  “micromanage” the Pentagon “with overly prescriptive organizational changes.”

The large-scale policy objections from Obama’s team addressed provisions that would prevent the closure of the Guantanamo prison, limit U.S. engagement with Cuba and cap the size of the National Security Council staff.

But the veto threat also condemned provisions to “restructure key parts of DoD in ways that have not been thoroughly reviewed by experts, either within or outside the department, and that are likely to make the department less efficient and agile.” It singled out the bill’s provisions seeking to accelerate adoption of innovations from the private sector by a plan that “disestablishes” the undersecretary of Defense for acquisition, technology and logistics, a job currently held by Frank Kendall, and divides its duties among a new undersecretary of Defense for research and engineering and the renamed undersecretary of management and support.

“This new position” a committee summary said, “builds upon and updates the old USD(R&E), a once-powerful position that helped to lead the development of stealth, precision guided munitions, and other advanced capabilities as part of the so-called ‘Second Offset’ strategy during the Cold War.”

The Obama message called those changes “failed models of the past” that would add confusing bureaucracy and undermine the authority of the Defense secretary. And it defended the current undersecretary of acquisitions office as having “a track record of improved acquisition performance for the taxpayer since the implementation of the Weapon Systems Acquisition Reform Act of 2009 (WSARA) and the Better Buying Power initiatives of 2010 to the present.”

The White House objects to provisions to “prescribe the use of a wide range of contracting methods in circumstances that history has proven are not appropriate or efficient in meeting the military's needs,” the statement said.  The committee’s bill would encourage “more commercial-like fixed price contracts and accounting systems and methods,” while seeking to “improve DoD’s access to non-traditional commercial and global innovation through more streamlined and commercial-like processes.” The Senate bill would also “streamline regulations of commercial items and commercial off-the-shelf items, and exempts the purchase of commercial off-the-shelf items from certain regulations.”

The Senate panel argued for dispersal of authority for procurement of weapons systems and services. “The problem with this functional organization is that it too often inhibits, rather than enables, strategic integration,” the committee summary said.  “Far too much has to be pushed up to the secretary and the deputy, because they are only two people in DoD who can perform cross-functional, strategic integration.”

But the Obama team has concerns that the bill’s changes would “blur lines of responsibility and control over resources within the department, and would require the issuance of numerous unnecessary and burdensome policies, directives and reports,” the statement of administration policy said. Other sections would “limit the secretary's ability to use teams” by “mandating an inflexible legislative schedule,” the statement continued.

The administration also objected to the bill’s proposal to transfer the Defense Contract Audit Agency from the comptroller’s office to the authority of the Defense secretary (management and support), saying the change would impair its ability to perform independent audits.

Two areas where the White House agreed with lawmakers were the plans to increase the cap on dollars that managers can spend quickly using purchase cards and to simplify proposal development and evaluation for acquisition of commercial items.

At least one industry group supported the bill. The IT Alliance for Public Sector, an information technology contractors group, praised both the House and Senate versions, welcoming provisions to boost Pentagon buyers’ access to commercial items by “exempting commercial suppliers from burdensome government-specific regulations (e.g., the business systems rule), to expanding the definition of a non-traditional defense contractor.”

Contractors like the bill’s incentives for companies and agencies to share contract savings throughout a contract lifecycle, as well as the limits on use of lowest price, technically acceptable contracts for complex procurements, the group noted. “LPTA is a race to the bottom on price, and we don’t want the cheapest cyber engineers,” Trey Hodgkins, ITAP’s senior vice president for public sector, told reporters last week.

Reforms in required accounting systems are vital to “prime companies, some of whom have only 5 percent of their global footprint in the federal space,” Hodgkins said. They don’t want to “build a business system, an accounting system and a financial system without clarification” that Pentagon requirements will remain in effect for the long term.

ITAP also welcomed provisions to create more transparency on how Pentagon contracts achieve mandatory set-aside goals for small business.

But member companies’ “No. 1 issue,” according to Hodgkins, is preserving the bill’s provision to limit or exempt the Defense Department from implementing President Obama’s 2014 Fair Pay and Safe Workplaces executive order. He called the order a “redundant and costly” burden that would not achieve its goal of weeding out “bad actor” contractor companies for labor violations such as discrimination against LGBT employees.

Not surprisingly, the president’s veto threat defends the order against efforts to limit its applicability to contractors that have already been suspended or debarred. “Such limited applicability,” the White House wrote, “would undermine broader safeguards established by the president to ensure that agencies are identifying and working with contractors with track records of compliance with labor laws, which enhances productivity and increases the likelihood of timely, predictable, and satisfactory delivery of goods and services.”

The House passed its version of the defense authorization bill on May 19. According to Andrew Philip Hunter, director of the Defense-Industrial Initiatives Group at the nonprofit Center for Strategic and International Studies, “the exact parameters of the acquisition improvement provisions in the FY 2017 NDAA are still not set. Floor amendments and conference negotiations could substantially change the final bill,” he wrote in May. “Conference negotiations will be particularly telling, given the dramatic differences in the scope of the acquisition reform proposals.”