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InNeedofWisdom

Extent of Obligation to Analyze Subcontracts

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In a speech yesterday at the 2014 Air Force Association's Air & Space Conference and Technology Exposition, Gen. Hawk Carlisle made the following statement (which can be found at the bottom of http://www.af.mil/News/ArticleDisplay/tabid/223/Article/497497/innovation-is-key-to-stabilizing-the-pacific.aspx.)

We owe that to the American people, that the very next dollar we spend is an increase in combat capability for our force. We have a moral obligation to this nation to produce the very best Air Force we can produce, given the resources they give us. [emphasis added]

Here are some questions:

1. When you analyze a subcontract (price or cost analysis), do you believe you have any kind of moral obligation to negotiate the absolutely best deal possible?

2. Do you feel that other constraints (e.g. schedule expectations) justify using "resources" in a way that results in less than the absolutely best deal possible?

3. Or, do you believe that any moral obligation to produce the very best "product" (e.g. Air Force) is simply a concern of the government, and that your concern is to help the government spend money (in good faith and truthfully)?

If no question lines up with what you think about a contractor's obligation to analyze subcontracts, how would you describe that obligation? Do you think this lines up with the expectations of the government?

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1. No.

2. No.

3. The wording of your question might be improved for clarity. I always have a tough time answering questions that start with "or" and which also include an "and" in the middle.

In some instances simply focusing on driving to the best (lowest) price is demonstrably counter-productive to the long-term contract outcome. Here's a good example of unintended consequences:

http://www.defenseindustrydaily.com/sikorsky-parts-issues-come-to-a-head-with-level-iii-car-02853/

Perhaps some of the many readers of the site are familiar with this debacle, and can post regarding why I linked cost savings to the LIII CAR. I think it would be indiscreet of me to post more.

In general, I believe it's better to treat a subcontractor as a partner rather than as a transaction. Partners are invested in results, and will often make sacrifices over and above the letter of the agreement in order to make sure the desired results happen. On the other hand, a subcontractor who's in it for a single transaction needs to maximize profit right then and there, since there is little if any tangible future benefit. That's where I am on these questions, in any case.

H2H

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Answers:

1. No. But the Air Force has a moral obligation to be the best air force it can given the resources provided to it.

2. Yes. Sometimes the government's requirements give rise to circumstances that will prevent a contractor from providing the "absolutely best deal possible". Italics added. That's a dumb question.

3. That is a VERY badly written question. It might also be a dumb question, but I'm not sure what it means. I'll decide after you clarify, if you do.

A contractor's obligation to analyze prospective subcontracts is determined by the laws and regulations that apply to that process and by sound general business practice, which includes honesty and competency.

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In some instances simply focusing on driving to the best (lowest) price is demonstrably counter-productive to the long-term contract outcome.

H2H, Thank you for the link about the quality issues. It makes sense that the lowest price may not provide the best value (or deal, depending on how you define it). I also like how you emphasize the ongoing relationship (partnership) of the prime contractor and subcontractor to deliver the product or service to the government.

Answers:

1. No. But the Air Force has a moral obligation to be the best air force it can given the resources provided to it.

2. Yes. Sometimes the government's requirements give rise to circumstances that will prevent a contractor from providing the "absolutely best deal possible". Italics added. That's a dumb question.

3. That is a VERY badly written question. It might also be a dumb question, but I'm not sure what it means. I'll decide after you clarify, if you do.

A contractor's obligation to analyze prospective subcontracts is determined by the laws and regulations that apply to that process and by sound general business practice, which includes honesty and competency.

Vern, without getting into a circular argument with you about opinions or standards, the second question is intended to lead you to a logical answer based on 1) Your answer to the first question (e.g. if you had said, "Yes" to the first question) and 2) How you define "absolutely best deal possible". I like how you put the contractor's obligation into your own words at the bottom of your posting.

H2H and Vern, your answers to the first question agree with what I meant in the first part of the third question. I agree with you that there wasn't a need to repeat the first question again as a qualifier (regarding the government) to the second half of the third question (regarding the defense contractor). What I meant by the second half of the third question might be best explained by Frank Kendall's article, "Our Relationship with Industry" (http://www.dau.mil/publications/DefenseATL/DATLFiles/Nov-Dec2013/Kendall.pdf). Industry's concern (obligation) is to earn a profit (i.e. help the government spend money) in good faith and truthfully. Thank you for your responses. :)

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