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Eleanor Spector

Vice President, Contracts

Lockheed Martin Corporation

August 5, 2008

9:30-10:15AM

Industry Acquisition Issues

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InternationalInternational

DefenseDefense

58%58%27%27%

15%15%

Civil Government/ Civil Government/ Homeland Security/Homeland Security/

Intelligence and Intelligence and OtherOther

Lockheed Martin 2007 Sales

Total Sales - $41.9BTotal Sales - $41.9BTotal Sales - $41.9BTotal Sales - $41.9B

Air ForceAir Force23%23%

Navy/USMCNavy/USMC23%23%

ArmyArmy9%9%

Other DoDOther DoD3%3%

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LM Contracting Statistics

• 46% of contracts fixed price

• 31% cost reimbursable

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Hot issues

• Award/incentive fees (not “bonuses”)

• Ethics, OCI, PCI

• Mandatory disclosures prior to company investigations

• Data rights

• Industrial base and protectionist legislation

• Information assurance

• Fixed price production contracts prior to demonstration of technology

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Congressional Perceptions

• Impatience with cost estimating and control on development contracts

– Incentive and award fee changes

– Minimizing cost reimbursable contracts

– Nunn-McCurdy Act Changes

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Congressional Perceptions

• Perception executive branch losing ability to manage contracts

– Redefining inherently governmental definition

– Acquisition workforce enhancements

– LSI restrictions

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Congressional Perceptions

• Need more openness in acquisition process

– Limitations on IDIQ services – competition over $100M

– Expanded protest rights (while DoD concern with protests grows)

– Public postings of past performance, contract information, justifications, executive compensation

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Congressional Perceptions

• Frustration with stories of fraud, waste and abuse – Anti-profiteering bills– Mandating self-reporting of potential

violations– Expansion of FCA’s

reach/whistleblower rights– UCA definitization schedules and fee

limitations– Demands for additional data rights

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Congressional Perceptions

• DoD and industry not maintaining arm’s-length or preserving competition– Inherently Governmental functions

redefined– OCI/PCI treatment and reporting– Increased access to protest system– More compliance and integrity reporting– Lead System Integrator prohibitions– Expanded protest authority

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FAR Cases of Interest

• Reporting subcontract award data• Exemption of commercial services from

SCA• Contractor compliance and integrity

reporting• E-Verify (employment eligibility

verification)• Conflicts of Interest

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DFARS Cases of Interest

• Excessive pass through charges

• Technical data rights

• Open source software

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Industry Acquisition Agenda

• Requirements generation and stabilization–Rational restrictions on changes in

development–Greater stabilization of

requirements before milestone B

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Industry Acquisition Agenda

• Technology maturation–Quantum leap vs. evolutionary

• Cost estimation and analysis–Award at Government estimate–Cost realism as major selection factor

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Industry Acquisition Agenda

• Protect Company Intellectual Property – New rules designed to aid sustainment

discourage private investment in technology innovation and the use of commercial technologies by requiring rights to privately developed technology as a condition of doing business.

– E.g., Requirement for all technical data on a satellite contract.

– Obtaining more rights in data will not solve most logistics support problems.

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Industry Acquisition Agenda• Multiyear contracting

–Enhanced use creates economies of scale

• Reasonable returns–Award fees are not bonuses–Development programs must be

profitable• Workforce enhancement and training

–Implementation of Gansler recommendations

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Industry Acquisition Agenda

• Contract type determination–FAR Guidance is appropriate–Contract type determined by risk

• Funding stability, reprogramming flexibility–Fund and fence program reserves–Allow greater flexibility in

reprogramming

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Industry Acquisition Agenda

• Draft standard, workable rules on protection of unclassified information on contractor networks.

• Concerns:– No clear definition of information to be

protected– Dissemination of network vulnerabilities– Costs to protect sensitive unclassified

information

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Cost Growth• Acquisition community has failed to convince GAO and

senior Government personnel the causes of cost growth on development contracts which include:– Optimism in competitions– Unpredictability of required technological innovations– Major changes in requirements after award– Funding instability

• Defense contractors develop the best systems in the world, yet earn minimal returns on development contracts.

• Contractors often supplement insufficient budgets on incrementally funded development contracts, or risk disruptive work stoppages, yet are given no credit in fee determinations.

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Summary

• Considerable activity in acquisition policy areas.

• Likely to be new focus with either new administration.

• Acquisition is never dull!