DFARS Case 2017-D019: One Large Road Block

The road to a faster procurement process is paved with good intentions. The Government wants to make its practices more efficient, productive, and save money for taxpayers. It has proposed a new rule on contract financing payments as a solution. The road might look nice and smooth from the Government’s 10,000-foot vantage point, but small to mid-range corporations on the ground are anxious about a pothole up ahead. The pothole has DFARS Case 2017-D019 written all over it.

 The DoD states that it’s National Defense Strategy for 2019 is to: “Reform the Department’s business practices for greater performance and affordability.”

Giant Pothole and the FY 2019 R&D Budget

By lowering the payment rate to corporate contractors (not small business contractors) from 80 percent to 50 percent, the Government intends to cover contractor costs and fees alone in the early stages of the project. Government contractors earmark the extra money, which they’ve come to expect, for growth. If the Government digs into that, then smaller to mid-range corporations (who lack substantial cashflow) won’t risk investing as many funds or as frequently into R&D in FY 2019. What we’ll see is a dip in innovation occurring in the most agile segment of the defense industry.

The Government has incentivized high performance by offering companies who meet milestones an extra ten percent bonus over the negotiated fee for the work. This sounds fair. Except for two problems:

  1. Can contractors meet those milestones since projects are often delayed, or new costs incurred through no fault of their own?
  2. Can and will the Government enforce these new procedures?

Clear Road for Big Defense Contractors

Big corporations who have the cash or credit to fund their own R&D in the race to innovation can easily go around the pothole. In fact, they might enjoy having the road to themselves.

This is because the bigger companies will likely go one of two ways: 1. They won’t take any partners on larger contracts as they can’t afford to; or 2. Either situation is not good for small to mid-range corporations. You have a freezing out on the one hand and a bunch of fingers pointing on the other.

The Government should introduce and enforce new quality assurance measures to hold prime contractors’ feet to the fire, rather than reduce or withholds funds.

If DFARS Case 2017-D019 goes through, we’ll see a very conservative approach to R&D budgets for the coming 2019 fiscal year and a negative impact on teaming.

While the intent behind it is good, it’s really just a big pothole. If the DoD institutes this process, they curtail the innovation they desperately need.

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