Sunday, May 02, 2010

IMPROVE Acquisition

On the 28th the House passed the IMPROVE Acquisition Act. The two main focuses of the bill, as the name indicates, were on tighter spending in defense acquisition and creating incentives for small defense contractors to enter the market. DefenseNews comprehensive view of the bill includes:
• Demanding more accountability among acquisition workers;
• Improving financial management so Pentagon spending can be audited;
• Expanding the industrial base to increase competition;
• Rewarding acquisition workers who save the military money and punishing those who don't.
It passed with a resounding 417-3 vote. Estimates are the bill could save the budget $27billion a year.

There are some interesting changes in the acquisition process. One is allowing the military to switch vendors if a new company can offer a 15% saving without a decrease in quality. Talk about making for a picky buyer. The military is already a monopsony, and this idea seems to decrease incentives for contracting firms to want to innovate if their contracts can be broken. Of course, on the surface, they would not ‘break the contracts’ but this might provide some nice escape clauses. Another interesting focus is the need for military budget transparency. Roughly two-thirds of the DoD budget is fully auditable. This is much higher than the past, but still a work in progress. In 2007 it was only 36 percent.

Even though the bill passed with 417-3 vote there were still complaints. Some arguing that adding more regulations will just complicate the acquisition process. Others commented that the bill will eventually hurt small defense contractors instead of helping due to the potential of restricting ‘bundling contracts.’ The big firms do it too.

In the end $27billion is not a small number and working towards tightening DoD spending is not a bad thing. The oligarchic suppliers and the monopsony customer make defense acquisition a tough market to foster competition and cost-savings. The Senate still has to look at this legislation and some suggest they won’t support it. As our reading for the week argued, the big contractors probably are not going anywhere any time soon, but finding ways to break the unfair markets, incentivize innovation, and reduce costs are goals worth working towards in my opinion. But then again, if reducing costs means lower quality then what?

1 comment:

Joint STAR said...

monopsony...seriously? showoff. Hillebrand would be proud.