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Happy Friday!
Our top story provides a counter to last week's headline, in which defense contractor CEOs admitted that fixed price contracts are no longer attractive or compatible with their business model.
This week, Space Development Agency Director Derek Tournear explains how SDA's use of fixed price contracts is immune from the money-losing, high-stakes challenges that more often occur with DoD's fixed price contracts for major platforms.
DIU released its plan for DIU 3.0, which articulates a shift to delivering game-changing technologies at scale. The full plan lists eight lines of effort:
1. Focus on the most critical capability gaps and embed with the warfighter to do so.
2. Partner at every level with DoD’s “engines of scale.”
3. Catalyze the DoD’s innovation entities into a community of impact.
4. Take the partnership with the commercial tech sector to a new level.
5. Realize the enormous potential of tech partnership with allies and partners.
6. Build the trust and momentum required for speed and scale.
7. Retool DIU to support all of the above.
8. Provide the Secretary and Deputy Secretary with world class dual fluency advice.
The vision is ambitious. As LOE #7 points out, this shift requires a tremendous influx of personnel able and willing to do the heavy lifting.
Also this week, DIU awarded three prototype agreements for Large Displacement Unmanned Underwater Vehicles (LDUUVs) to Oceaneering International, Kongsberg Discovery, and Anduril Industries.
Anduril will be able to deliver the Dive-LD platform to sailors this year, relying on advanced manufacturing techniques that include a 3D printed outer shell. The contract creates direct access between Anduril and operators to tailor the drone to their needs.
The Commerce Department announced the creation of the U.S. AI Safety Institute Consortium, which will "unite AI creators and users, academics, government and industry researchers, and civil society organizations in support of the development and deployment of safe and trustworthy artificial intelligence (AI)."
A few stories highlight the latest supply chain challenges in munitions production.
- The Navy can't ramp up production of needed missiles due to bottlenecks in electronics and rocket motors.
- The Army is increasing production capacity for 155mm shells, but needs more supply of the explosive powder that goes inside.
Yesterday, RAND held a webinar on PPBE reform with speakers Bob Hale, Bill LaPlante, Chuck Hagel, Eric Fanning, Lara Sayer, and Frank Kendall. The consistent refrain that coursed throughout the event: the frustrating harm wrought by continuing resolutions. Bob Hale previewed some of the commission's recommendations, but admitted that there doesn't seem to be a clear fix for CRs.
A few soundbites on CRs.
- Eric Fanning said, "it's a really disruptive and expensive place to be."
- Frank Kendall lamented that the FY2024 budget was his first chance to get money that aligns with his priorities for competing against China. "I have been in office for three and a half years and never seen that money," he said. "That is a crime."
In addition to recommendations already shared in the commission's interim report, others in the works may include structural changes such as combining programming and budgeting, using single documents to report out results, more focus on major capability areas, and modernizing business systems.
We'll continue following these conversations and the final report due on March 6.
And of course, the symposium gives you an opportunity to hear from these experts in person.
- Our panel on PPBE reform has now confirmed speakers Bob Hale, Arun Seraphin, and Lara Sayer.
In ARP news, our latest student research evaluates challenges in modernizing contract administration software used by DCMA and the impact of this outdated technology on the acquisition workforce.
- As LCDR Parry concludes, "It appears when a workforce is trained to manually document every data point, observation, and step forward, the intuition that empowers a sense of direction and purpose is compromised."
Finally, it's almost Super Bowl Sunday!
Program is posted online!
Register now to join us for this action-packed two-day event.
This Week's Top Story
Semper Citius and fixed price
Derek Tournear, LinkedIn
Photo by Van Ha, Space Systems Command
There are a lot of recent comments in the media from aerospace & defense companies expressing reluctance to continue bidding on fixed price solicitations for DOD programs, with the commentary focused on lost profit. As a result, I’ve received many inquiries about how this affects SDA’s business model. The short answer is, “it doesn’t.”
SDA’s success depends on a healthy supplier base to deliver satellites and ground systems that SDA will field in the Proliferated Warfighter Space Architecture to provide advanced space capabilities to the warfighter. SDA’s commitment to compete every layer of every tranche helps create this robust and diverse marketplace. This mantra is a result of SDA’s two central pillars (1) proliferation – build in resilience by buying and fielding hundreds of satellites and (2) spiral development – field new capabilities on orbit every two years by hook or by crook. SDA has also been very vocal and transparent - we will utilize fixed price contracts to incentivize speed and technical maturity in bids.
So, why isn’t SDA’s model affected by other recent industry pronouncements? To respond, we must look at potential motivations behind these companies’ statements. At the end of the day, these companies are responsible to their leadership and, in many cases, their stockholders for delivering a profit. Mainly, they are designed to support national security, and to make money while doing it. SDA is only successful if our vendors are successful. I understand that they need to make a profit on our programs, while giving a high return on the taxpayer’s investment.
As this ‘lost profit’ narrative developed, I heard from executives from the respective companies and inquired if this would affect their future SDA bids. In all cases I was assured it would not because of SDA’s unique management of firm-fixed-price programs. Unique when compared to DOD’s recent practice of treating fixed price acquisitions like cost plus acquisitions, for which industry agreed to bid under those terms.
The programs that treat fixed price contracts like cost plus acquisitions break down in three ways:
1) requiring high risk development of immature technology;
2) locking bidders into potentially lengthy fixed price initial production contracts; and
3) high stakes – the company faced winning/losing over a decade of work on a single bid.
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