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7 hours ago, Matthew Fleharty said:

Just stopping by to share an interesting read (via Politico) regarding the current pricing environment in the Department of Defense.  Enjoy and looking forward to the discussion!

http://www.politico.com/story/2016/04/defense-pentagon-spending-assad-221776

Thank God that Assad "learned a valuable lesson from his years at Raytheon, one of the Pentagon's largest contractors:"  He said "We generally overpay for almost everything we buy." (http://www.politico.com/story/2016/04/defense-pentagon-spending-assad-221776)  I will vouch for that, based upon his and my experiences on a large Chemical Weapons Destruction and Disposal, Systems Contract at Umatilla Chemical Weapons Depot in North-Eastern Oregon. 

In 1998, Assad was Executive Vice President and served as the COO and subsequently, as the Chairman and CEO of Raytheon Engineers and Constructors, Inc.(RECI).  I believe that Raytheon Demilitarization Company (RDC),  another legal entity under Raytheon, was the Prime Systems Contractor and that RECI constructed the project under a Firm-Fixed Price portion of the Systems Contract.

I had an extremely unfortunate, unpleasant, stressful and painful experience, dealing with both Raytheon entities on that project from early 1997 until mid 2000.

Sometime in late 1999 or early 2000, I sat face to face across from Shay Assad at a small table in a Salt Lake City hotel meeting room, surrounded by a roomful of various standing Government and Raytheon executives, as well as other project participants.  We exchanged official positions on a $36 million REA that later grew to ~$136 million.
 
In July 2000, Raytheon sold RECI to Washington Group International - WGI (the former Morrison-Knudsen Construction Co.),  WGI finished the construction phase of the project in 2001 under great financial distress.  WGI sued Raytheon, as well as Shay Assad and others, concerning the circumstances of the overall sale, not necessarily over this one project.

Maybe its a good thing that he is on the other side of the table now...

 

 

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Hey, ap. I don't hate Shay Assad.  

But I witnessed how a major Defense Contractor struggled on two of our large, complex and challenging FFP construction phases of overall Systems Contracts. It didn't appear to fit their Corporate and overall business identity.  It could take a large book to tell the entire story of The Umatilla project, alone. 

I personally thanked God for Raytheon selling their E&C business to the Washington Group, although the WGI folks in Boise, Idaho might have wished differently afterwards.

It was alleged in the WGI lawsuit that Raytheon did not disclose hundreds of millions of dollars of losses on numerous ongoing FFP contracts.  

I actually suggested to the WGI VP for Contracts that WGI should closely examine the real status of construction on one contract under the purchase at one of our other project sites. Without going into detail, I was suspicious concerning the "everything is rosey" status reporting by both our RE and their site manager (former RECI employee) at the quarterly Program Management Reviews. WGI investigated. They found that the Schedule to complete was "optimistic". The estimated cost to complete the project was tens of millions of dollars over the remaining contract amount.  The project was actually many months behind a realistic schedule, based upon labor and resource requirements for the remaining work.

 There were no open changes or other contractual issues impacting the cost or schedule at that site, as we had incorporated all major programmatic design changes into the contract before construction began to eliminate/mitigate impacts.

Without elaborating, our RE and the Site Manager both retired...

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Hi, Joel,

Didn't mean to imply that you did.  Just thought your anecdote supported the premise of the article.  :rolleyes:

BTW, Politico crashes my work browser.  I wish more web sites were as clean as this one.

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And Joel the legacy of Umatilla (which is essentially in my back yard) continues.   It ain't over until it is over.....

The Umatilla Army Depot land is now scheduled to return to local control in 2017.

East Oregonian

Published on April 4, 2016 12:01AM

The Army’s latest schedule has the former Umatilla Chemical Depot land in local control by May 2017.

The Columbia Development Authority was supposed to receive the land in 2015, but it has twice been delayed — first until Nov. 2016, and now until the May 2017 date.

On Monday, the authority’s executive director and board agreed that progress was still being made, but also expressed frustration that it has taken so much longer than promised.

“The length of time in the transfer is costing us opportunities,” board chair and Umatilla County commissioner Bill Elfering said.

After the Army conveys the former depot land along Interstate 84 east of Boardman, part of it will be used as a National Guard training facility. But the rest will fall under the control of the development authority for a wildlife refuge and industrial development.

The authority has repeatedly stated that it is not taking the land off the Army’s hands unless it is “free, clean and has water.”

In October executive director Greg Smith said that the Army’s initial proposal to give the authority approximately 25 percent of the site’s water was not nearly enough to support the scale of economic development needed to make the site worthwhile to acquire. On Monday he said water rights negotiations were slowly moving along, with the Army agreeing to give two wells to the Columbia Development Authority, three to the National Guard and have two wells split between entities.

“It comes down to well number one,” Smith said.

He said the Pentagon insists it needs the water rights to that well, but has also said it is open to leasing most of those rights to the authority if they worked together to put in infrastructure needed to get the defunct well working again.

“I genuinely think they want to reach a good resolution,” Smith said. “But their dilemma — and I think they’re sincere on this — is that they have a national security issue.”

That issue is wanting to make sure they have the infrastructure in place, should the water be needed once again to support a war effort. They also want to have the water on hand for fire suppression.

Those issues were discussed when Smith and board members Kim Puzey (Port of Umatilla) and Gary Neal (Port of Morrow) met with Defense Base Closure and Realignment Commission (BRAC) officials in Washington, D.C. in March. Puzey said the atmosphere of the meeting started off “bristly” and “prickly” but Smith did a good job of practicing the principle “seek first to understand, then to be understood” and the tension in the room lowered considerably as things went on.

Puzey said even though the water discussion was taking a long time, he believed that taking the time to negotiate was, in the end, going to be mutually beneficial for both the development authority and the National Guard.

Smith said he felt that another trip to Washington, D.C., in the next couple of weeks while Congress is going through the appropriations process would be highly productive for moving things along. The board agreed.

At the beginning of the meeting the board heard from a potential client. Taylor Steele said her employer, One Energy Renewables, a Seattle-based company specializing in utility-scale solar farms, was interested in leasing a section of depot land for a solar panel installation.

“I’ve been out there and saw some sites we think are absolutely phenomenal,” she said.

When asked how big of a project they were looking at, she said things could change but they would consider somewhere in the ballpark of 20 megawatts. The solar array Umatilla Electric Cooperative just brought online in Umatilla County is 1.3 megawatts and puts out enough energy for 112 homes.

Puzey said he thought One Energy Renewables would be a good example to take to the federal government and show them the types of projects that are being held up because the conveyance process was taking so long.

The Columbia Development Authority is a partnership between Umatilla County, Morrow County, Port of Umatilla, Port of Morrow and the Confederated Tribes of the Umatilla Indian Reservation.

 

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Thanks for the info, ap and Carl.  The Umatilla turnover delays don't surprise me, based upon my experience in the Chemical Demilitarization Program,  due to factors beyond the Army's control. 

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Vern,

Excellent article -- thanks for sharing the link. It led me to the tentative maxim: "Buy the way you fight."

H2H

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I just wanted to point out one of the Terms of Use here.  It is

"9. No copyright infringement. This includes the copying of a copyrighted item and pasting it verbatim in a post. For example, do not copy and paste press releases, news articles in their entirety, etc. If you wish to note a copyrighted item, highlight it, and provide a link to the full copyrighted document so that the copyright holder is identified."

It is easy to cut and paste a copyrighted item and forget to add a link to the original item.  I had missed it for several days above and just added a link today.  I need you to help me enforce this policy by adding links to all your articles.  Preferably, you should add a paragraph and force the reader to go to the original document by linking to it.

Once in a while we forget and when I see it, if I do, I will let you know about it.

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22 hours ago, here_2_help said:

Excellent article -- thanks for sharing the link. It led me to the tentative maxim: "Buy the way you fight."

I'll probably take a lot of flak for the following remarks, but I disagree.  I don't think buying "unfairly" is appropriate when the DoD is funded with taxpayer's dollars and represents approximately 15% of all federal dollars spent and roughly 50% of the discretionary budget (though the exact values vary from year to year, it is pretty clear the DoD represents a considerable portion of the federal budget on average).  As such, we have an obligation to fulfill public policy objectives, which includes maintaining fairness in our processes.  Sure, that introduces inefficiencies into the procurement system, but I'd argue that it's worth it in order to maintain the public's trust (they pay our salaries and for our requirements).

The author of the article posted by Vern states in his concluding paragraph "the problem is that the cultural focus on fairness often prevents the government from buying the right kit from the right supplier at the right price, just because everybody has to be given a fair chance to try for that fair price" (http://www.atlanticcouncil.org/blogs/defense-industrialist/what-does-shay-assad-mean-by-fair-price); however, is the problem truly fairness or could it be an undereducated acquisition workforce, poor requirement(s) development, etc.?  I think as a community we can maintain the former by doing better at the latter.

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Matthew:

I'm trying to understand your point. Are you saying that the problem is not with acquisition principles, rules, and procedures, but with workforce execution?

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I've worked for both government and industry (a Fortune 10 firm).  In general, the profit motive (need to make a return for shareholders) drives getting the best deal for the company, even if it means being very aggressive at times during negotiations or employing certain tactics that wouldn't be considered appropriate in government contracting.  I don't think there is anything wrong with negotiating aggressively and seeking a great deal for the taxpayer when using negotiated procedures.  If fact, I think all COs should seek to a great deal for the government.  That is what most contractor representatives seek for their business.  To me fairness includes dealing with all firms equitability and not prejudicing one over another, as well as complying with procurement integrity statutes and regulations.  It means following the requirements of the FAR and applicable supplements.  However, I don't think it is "unfair" to drive a hard bargain and negotiate a great deal for the government.  I suspect too often $$ or some other benefit to the government is left on the table because the CO had the ability to determine the price offered was fair and reasonable (i.e. based on past procurement history or a government estimate, etc.).  I also think there is a difference between the inefficiencies caused by the burdensome regulatory environment government COs operate in, versus leaving significant $$ on the table during a negotiation or not conducting negotiations at all.  The former adds cost because of inefficiencies, some necessary, some not, but the regulations are what they are.  The latter doesn't have anything to do with inefficiencies but rather CO inaction, which also has a cost.  Sure, better requirements documents and a better trained/experienced workforce can help reduce waste and save $$, but I think that COs could do more to obtain a better deal for the Government without resorting to using unfair practices or treating a prospective contractor as an "enemy".  The depth, vigor and frequency of negotiations I saw during my time in industry pales to what I've observed in government before and after my time in industry.  While taxpayers expect and deserve a fair contracting system, I suspect they also want the government to spend less on a particular contracting action when they can by negotiating a great deal on their behalf.

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8 minutes ago, Todd Davis said:

I think that COs could do more to obtain a better deal for the Government without resorting to using unfair practices or treating a prospective contractor as an "enemy". 

Like what, specifically?

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35 minutes ago, Vern Edwards said:

Like what, specifically?

These are just a few that come to mind:

- Help develop better requirements documents.  Be more clear as to what the Government needs are and reflect market standards and practices where possible.

- CO should better understand what they are purchasing, the current market environment and cost drivers for what they are acquiring.  Goal should be to mitigate costs where possible.  During my time in industry many of the systems I procured were driven by the cost of certain metals and foreign currency.  We developed strategies around these risks to mitigate cost drivers.

- Conduct discussions more often when it makes sense.  The first offer of any firm is generally not their best offer.  There is almost always room to negotiate.  For example, even a 2-5% reduction on a $1,000,000 procurement is $20,000-$50,000.  That is nothing to sneeze at from my perspective as a fellow taxpayer.  If this practice is repeated on other procurements, over time hundreds of thousands, or even millions, of dollars could be saved by a single office or CO.

- Go into a negotiation prepared.  Establish objectives ahead of time.  Know what the other side is going to say and be ready to counter their argument or address it.  I've gone into a negotiation unprepared in the past and it is a miserable feeling.  I felt like an idiot and I didn't accomplish what I needed to.

- Use technical experts (when available) to assist with not only negotiation prep, but have them available during negotiations.  For me, the engineers I worked with were an invaluable source of knowledge and experience.  They new the product/service well, cost drivers, and often the market place and certain suppliers.

- During a negotiation, don't be afraid to say "no" or "that is unacceptable".  When approached by suppliers with cost increases the first thing I said was, "no", plain and simple.  The second thing out of my mouth was usually "how can you get me a cost reduction".  Most contractor's are looking internally for ways to reduce costs to increase their profitability.  Naturally, they don't want to give a portion of this up if they don't have to.  However, if it means having a better chance of obtaining a contract (revenue) they may be inclined to reduce their costs.  One of the things the business I worked for was focused on was cutting out the waste (lean [transactional and manufacturing]) to increase profitability.  We expected if of our suppliers, especially if they were observed to be operating inefficiently and at the same time trying to pass increased costs on to us.

- Ask questions like, how can we get this price lower or increase the benefit to the Government.  The prospective contractor may be willing to relent on price and/or have solutions that will increase the benefit to the government or reduce cost.

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Well, Todd, people have been suggesting every single one of those things for more than 40 years, apparently without lasting effect.

Thanks, anyway.

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1 hour ago, Vern Edwards said:

I'm trying to understand your point. Are you saying that the problem is not with acquisition principles, rules, and procedures, but with workforce execution?

Vern, I've read enough of your work to know better than to say there are no problems with acquisition principles, rules and procedures; however, as I was reading the article you provided I couldn't help but think about the Supreme Court's "least restrictive means" standard when dealing with free speech issues and how a similar standard could/should be applied concerning the principles governing the execution of federal acquisitions.  Whether we like it or not, government contracts are taxpayer funded and, as such, should take public policy objectives into consideration as much as possible - this includes maintaining fairness within in the acquisition system.  I suppose my point is that in trying to improve the effectiveness of said acquisition system, I'd argue we should first concentrate on other means to do so before we start compromising principles of fairness (or others) by creating more exemptions/exceptions.

1 hour ago, Todd Davis said:

While taxpayers expect and deserve a fair contracting system, I suspect they also want the government to spend less on a particular contracting action when they can by negotiating a great deal on their behalf.

Are the two mutually exclusive?  Maybe I misread the article, but it seemed to me like the author was stating that "fairness" was being employed to extract too much information or force too hard of a bargain from industry...

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I think Todd Davis raises one interesting point -- i.e., "During my time in industry many of the systems I procured were driven by the cost of certain metals and foreign currency.  We developed strategies around these risks to mitigate cost drivers." It is a well documented fact that the DOD lacks a coherent approach to acquiring certain strategic metals (e.g., titanium). Instead of centralizing purchases and using that volume to pressure the three domestic suppliers to lower prices, DOD too often pays its contractors to acquire titanium on a piecemeal basis, contract by contract. And then it protects those contractors by including economic price adjustment clauses, which (glossing over nuance) permit the contractors to pass on any price increases, thus reducing pressures to negotiate hard with one of the three domestic suppliers.

Not my opinion. it is the opinion of the DOD OIG in a 2009 report released in February 2010, Among other things, the DOD OIG found that 'the BLS producer price index for titanium mill shapes, used in the economic price adjustment clause of the Navy F/A-18 E/F Super Hornet contract, was outdated and subject to extreme market volatility, as it was primarily based on spot market prices. The index was also too narrow to be used in DOD multiyear contracts…” 

So the DOD could do more and it should do more. It could buy titanium (and other strategic materials) directly, establish a stockpile, and then provide the metals directly to its contractors as government-furnished material. According to the DOD OIG, that change would save taxpayers from $100 to $300 million annually.

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22 minutes ago, Matthew Fleharty said:

Are the two mutually exclusive?  Maybe I misread the article, but it seemed to me like the author was stating that "fairness" was being employed to extract too much information or force too hard of a bargain from industry...

No.

"Too much" is a relative term and is based on perspective.  I would expect, when pressed, for the other party in a negotiation to say that something is "too much".  However, if the actions of a CO are not inconsistent with the FAR and the negotiation is conducted in good faith, it would be hard for me to see where out I was out of line.  Of course a prospective contractor would likely look at it differently.  Part of negotiations is to press the other side to obtain the desired outcome.  I would expect a contractor to treat me any differently in a negotiation.  I would expect them to press me hard and challenge my positions in order to get me to concede to their position as much as possible.  Also, I would suspect that some of the same people that say "too much" are the same ones pressing their suppliers and subcontractors for price and other concessions during negotiations.  Again, all a matter of perspective.

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8 minutes ago, here_2_help said:

So the DOD could do more and it should do more. It could buy titanium (and other strategic materials) directly, establish a stockpile, and then provide the metals directly to its contractors as government-furnished material. According to the DOD OIG, that change would save taxpayers from $100 to $300 million annually.

That is not chump change.  Among the key ingredients are leadership, communication, and accountablity. 

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3 hours ago, Matthew Fleharty said:

Whether we like it or not, government contracts are taxpayer funded and, as such, should take public policy objectives into consideration as much as possible - this includes maintaining fairness within in the acquisition system.  I suppose my point is that in trying to improve the effectiveness of said acquisition system, I'd argue we should first concentrate on other means to do so before we start compromising principles of fairness (or others) by creating more exemptions/exceptions.

Matthew:

Let's think about this.

What does "fairness within the acquisition system" mean, and why should fairness be public policy? That question may seem absurd at first, but only because the words "fair" and "fairness" are so widely used and heavily freighted in our society that we rarely ask people who use those terms what they mean by them. And if we did, few could answer clearly and definitely.

Let's consider a speculative case. If we have worked with Company A for five years and they have provided excellent service at what we consider to be a reasonable price, why should we conduct an 18 - 24 month contract action and seek full and open competition for a new contract? Why not just negotiate a new one with the incumbent? We know that the contractor is qualified. We know what the service costs, and we can negotiate a fair and reasonable contract price. A new contract with the incumbent would give us continuity of operations. A new competitive contract action would be costly and any proposal that would come in at a lower price than we could negotiate with the incumbent would bring with it a significant level of performance uncertainty.

Except for the laws, why conduct a new competition? Improved quality and price through innovation? Maybe, but there would be no way to know until performance was well underway. Prevention of corruption? Maybe, but let's assume for the moment that corruption is detectable and preventable. Fairness to other companies by giving them a chance? Hold on. Why do we care about that? Doesn't fairness to the taxpayers come first? If I have a good business partner who has done a good job for me and is highly likely to do so again and at a fair and reasonable price, why is it "fairer" to go through a costly and time-consuming competition than to simply continue to do business with them? Isn't that what most businesspeople would do?

I think this is what the author of the article, James Hasik, was alluding to when, talking about procedural fairness, he asked, "Might not long-term best value be a more suitable objective?"

I can't help but think that what you call "fairness" is nothing but a political sop that has little if anything to do with good business practice and outcomes. Consider this. GSA just reported in the Federal Register that:

  • 5.6% of all FSS contractors received 80% of all sales;
  • the top 20% of FSS contractors accounted for 92.5% of FSS sales; and
  • only 2.6% of FSS contractors reported more than $1 million in FSS sales.

81 FR 21346, 48; April 11, 2016. Is that evidence of unfairness, or does it indicate that the FSS system is a sump of "fairness" waste? Think what it cost to award and maintain those 20,094 active FSS contracts. What price "fairness"?

Now, if we want to do business that way for political reasons, well, we're a democratic republic and that's what we'll do. But shouldn't we at least consider the possibility that we'd all be better off if we reconsidered and forsook "fairness" in at least some cases and acted like people running a business? Or is government so fundamentally unbusinesslike that all the talk about "better buying power" is just a lot of hooey?

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17 minutes ago, Vern Edwards said:

Now, if we want to do business that way for political reasons, well, we're a democratic republic and that's what we'll do. But shouldn't we at least consider the possibility that we'd all be better off if we reconsidered and forsook "fairness" in at least some cases and acted like people running a business? Or is government so fundamentally unbusinesslike that all the talk about "better buying power" is just a lot of hooey?

Vern,

Appreciate the well thought out remarks - while I'm contemplating them (and a response), would you mind clarifying what a/the standard would be for forsaking fairness?  If we're talking about acquisitions as a matter of principle, it'd be nice to know what the alternative might be (sounds like it could be business judgment, but I didn't want to be presumptuous).

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In my opinion, business judgement--in the sense of what an honest and responsible business manager would do who must answer to the owners (taxpayers) for the performance of the business--is a very good standard of practice.

For instance, assuming that competition is a good thing, is it always best to allow all responsible offerors an opportunity to compete, instead of, say, three firms prequalified through market research? Allowing all to compete might be the appropriate when buying commodities at the lowest proposed price, but it might not be appropriate when seeking proposals to fulfill a complex requirement.

Is it always best to rely on the competitive bids or proposals processes when selecting a contractor, with their complex and restrictive rules about proposal evaluation and business communications, or might it sometimes be better to select the contractor based on qualifications and then negotiate contract terms one-on-one with the selectee, as in architect-engineer contracting?

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The Government has attempted to adopt commercial practices with varying degrees of success, but better can be accomplished. Reviewing the processes used by industry and private citizens is probably a good place to start. Both heavily rely on sound business judgment in my experience.

When I worked for industry, we could entire into "life of the program" contracts with key suppliers. We used competition requirements similar to SAP - maximum extent practical considering the tradeoff (price/cost, time, quality, etc.). We didn't concern ourselves with fair and reasonableness price determination documentation, unless it was a Government contract, and simply focused on affordability (is it within budget/goals), availability (will it be where we need it, when we need it), and serviceability (is it able to be used for its intended purpose). Outside of new requirements, our evaluation factors, formally or informally, considered past performance, experience, and price/cost. Past performance data largely captured anticipated availability and serviceability for recurring supplies and services. The other factor and the one that took the most time was assent to our terms and conditions (Ts&Cs). A lot of effort was spent negotiating Ts&Cs, something I don't see frequently in Government contracting. We didn't look at key personnel, management staffing plans, technical approaches (unless a developmental item or switching suppliers to an unknown or unapproved source).

I wonder if the Government could improve things by adopting micro-purchase rules up to SAT and SAP for anything greater than SAT?

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11 hours ago, Vern Edwards said:

In my opinion, business judgement--in the sense of what an honest and responsible business manager would do who must answer to the owners (taxpayers) for the performance of the business--is a very good standard of practice.

For instance, assuming that competition is a good thing, is it always best to allow all responsible offerors an opportunity to compete, instead of, say, three firms prequalified through market research? Allowing all to compete might be the appropriate when buying commodities at the lowest proposed price, but it might not be appropriate when seeking proposals to fulfill a complex requirement.

Is it always best to rely on the competitive bids or proposals processes when selecting a contractor, with their complex and restrictive rules about proposal evaluation and business communications, or might it sometimes be better to select the contractor based on qualifications and then negotiate contract terms one-on-one with the selectee, as in architect-engineer contracting?

I don't think that the A-E selection method necessarily results in the best designs, the highest quality design products or affordable designs.  I've seen some poor designs from a few of the biggest design firms. I've seen where the "most highly qualified" firm isn't affordable. There are practical reasons for using the Brooks Act approach for selecting a design firm, but it doesn't necessarily ensure the best design products.

I do think that a two-phase process for some complex acquisitions could provide excellent results.  The process could provide for a short-list of the most qualified firms in phase one to compete on the basis of quality of the product or service, within an identified budget ceiling in phase two.  Then, allow for flexibility in proposing the solution.

The selected acquisition approach should be based upon the program or project objectives for cost, time and quality and/or other important objectives. 

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