Following a trend of criticism through the defense industry and members in Congress, the Pentagon backed off on Monday with proposed changes to how companies receive cash-flow on their contracts.
In an announcement released at 7:19 pm, Deputy Secretary of Defense Patrick Shanahan said the choice to withdraw the proposed acquisition changes resulted from not enough “coordination” from within the department.
“Recently, proposed amendments on the Defense Federal Acquisition Regulation Supplement (DFARS) were prematurely released, absent full coordination,” Shanahan’s statement read. “As an effect, the Department will rescind the proposed amendments. In coordination with defense industry, the Department can establish a revised rule to implement section 831 with the FY2017 NDAA.”
“The department will continue to partner closely with Congress and defense industry to look at all reform opportunities, ensuring we offer the best value to taxpayers and critical capabilities to military personnel who defend this great Nation,” Shanahan said.
Not mentioned in the statement: that since word of the proposed changes was released, the defense industry has become loud and unanimous in their opposition, and has enlisted its supporters on the Hill to assist fighting against the plan, supplied by Undersecretary of Defense for Acquisition and Sustainment Ellen Lord.
As section of a broader pair of changes towards the acquisition rules, Lord hoped to alter how companies receive their cashflow based on performance measurements, to act just as one incentive permanently behavior.
In a Sept. 5 interview with Defense News, she organized the rationale, saying “I believe the lifeblood of many market is cashflow, so what we will do is regulate the proportion of payments or even the volume of profit that can be achieved through which kind of performance they demonstrate through the numbers.”
However, three major trade groups, The National Defense Industrial Association, Professional Services Council and also the Aerospace Industries Association, objected to the proposal, which could slash the repayments on work to be practiced from eighty percent to 50 percent, with incremental increases for maintaining quality or on-time delivery, and decreases for businesses that have committed fraud.
Rep. Mac Thornberry, R-Texas, and Sen. Jim Inhofe, R-Okla., the chairs with the House and Senate Armed Services Committees, sent a Sept. 21 letter to Shanahan calling the proposal “fundamentally flawed” and asking it be rescinded and revisited.
“We shouldn’t make it more difficult to work with the Department of Defense as opposed to the rest of government, and that’s exactly what this regulation does,” Thornberry told reporters last Tuesday. “We try to streamline acquisition, we attempt to make it easier to use these small companies; and after that similar to this is released.”
The Pentagon anticipated implementing the changes by the end of the year, and planned to keep a public meeting on October 10, 2018 prior to public comment period ended on Oct. 23. Whether that event will still happen is unclear.