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Is contracting an intellectual pursuit? Are contracting officers intellectuals?

Posted by Vern Edwards, 22 February 2011 · 3,933 views

What follows is the text of a speech I gave on January 13, 2011, at the Conference for Journeymen held by the Air Force Space Command, Space and Missile Systems Center, the organization with which I started my career in 1974, when it was the Space and Missile Systems Organization (SAMSO) of the Air Force Systems Command. Several people have suggested that I publish it, so I am posting it here.

Is Contracting An Intellectual Pursuit? Are Contracting Officers Intellectuals?

Thank you for inviting me to speak to a distinguished audience of my peers, the journeymen of the Space and Missile Systems Center. I consider it a great honor.

My topic today was inspired by a sentence in a memo written by a very senior government acquisition official. The memo encourages contracting officers to use fixed-price incentive contracts, and the sentence reads as follows:

?A 50/50 share line should represent a point where the estimate is deemed equally likely to be too low or too high.?

That sentence is very bad. It is a very serious error. It stunned me to read that sentence in a memo from such a high-ranking acquisition official. We have known since Euclid in 300 B.C. that a line is not a point. The slope of a share line says nothing about probabilities, only about the agreement to distribute cost risk. The offending sentence reflects either extreme carelessness or ignorance not only of geometry, but also of fixed-price incentive contracts. It would have made sense to say that the target cost should be set at the point at which the cost estimate is deemed equally likely to be too low or too high. That would have made sense, but it would have been a very silly thing to say. And I think now that that single sentence is a symbol of much of what is wrong with acquisition management.

I have entitled my talk ?Is Contracting An Intellectual Pursuit? Are Contracting Officers Intellectuals?? In retrospect, this seems pretentious, which I do not want to be in front of this audience. But I am serious about those two questions.

Before I go any further, I had better say what I mean by ?intellectual.? I define an intellectual as someone who not only thinks, but who thinks about what they think about, how they think about it, and why they think what they do. For example, when thinking about the acquisition of service, an intellectual will ask questions about what he or she is thinking about⎯questions like:

?What is a service??

?What are the differences between supplies and services??

?How does the nature of services affect how we buy them??

Such questions are not about any particular service acquisition, but about service acquisitions generally. They stand apart from, and rise above, daily concerns. I consider those kinds of questions to be intellectual questions. I consider the asking and answering of those kinds of questions to be an intellectual pursuit. And I call people intellectuals who regularly ask themselves such questions and try to answer them.

My answers to the two questions of the title of my talk are as follows: Is contracting an intellectual pursuit? It should be. Are contracting officers intellectuals? Some, yes. But all should be. I believe that as professionals, we should think about what we think, how we think about it, and why we think what we do.

Let me give an example that may make clearer what I am trying to say. When I came to work here in 1974, one of the things I was taught about was incentive contracts. I was told about the various kinds of incentives⎯cost, schedule, and performance, and about the various types⎯fixed-price with firm target, fixed-price with successive targets, cost-plus-incentive-fee, and cost-plus-award-fee. And I was told that we use incentives to motivate contractors to produce better contract outcomes and that they work. I accepted what I was told. Why wouldn?t I? After all, I knew nothing, and the information was coming from senior people whom I respected. I call this kind of information ?received truth?⎯something we accept without question.

But after a while, prompted by my experience that incentives make everything more complicated and difficult, I began to ask myself some questions. The most important ones were: How do we know that those things work? Why do we think they are worth the trouble? And I started to dig around in libraries, looking for answers. My research led to more questions, and in trying to answer them I found that reputable researchers at Harvard University, Rand Corporation, Logistics Management Institute, and the GAO, looking at actual contract data, could not confirm that incentives work. All they found were assertions and anecdotal reports. When they collected hard data and looked for correlations, they found none. Upon close inspection, I found that the assertions and anecdotal reports were not based on verifiable information, but on feelings, unjustified assumptions, invalid arguments, and unsupported beliefs. My thinking now is that as a contracting officer I would not use a formula type incentive unless directed to do so by higher powers, as you are being directed today.

As my career progressed, I continued to think about what we thought and found that many ideas were widely accepted despite not being fully explained or demonstrated to be true. Our business is replete with received truths ⎯ about the positive effects of competition on quality and price, about the general superiority of fixed-price contracts, about the net benefits of the Truth in Negotiations Act, and about performance-based services acquisition, to name but a few. These ?truths? go largely unquestioned. What do we mean by competition? What form or forms does it take? If there is more than one form of competition, what kind do we have in weapons development? How does it work⎯cause to effect? Is our method of obtaining competition designed to produce the kinds of results that we are looking for? If competition ?works,? how do you explain the A-12, the F-22, and the Marine Corps landing craft programs, all of which ended in failure although carried out under competitively awarded contracts? If competition ?works,? why is almost everyone unhappy with the conduct of competitively awarded major system programs?

Why are we continually reforming acquisition without apparent success? The latest DOD reform "initiative," and the one with which you will be occupied for the next couple of years, is but another in a very long line of such initiatives. A friend of mine recently suggested that retirement age should not be calculated in years of service, but in cycles of reform, that instead of being able to retire after 20 or 30 years, a person should be able to retire after three reform cycles. I think I?m on my fifth or sixth, I have lost count.

At a conference in Washington DC in early December, I was on a panel that discussed DOD?s new reform initiative, and I expressed the view that we cannot fix the things that people don?t like about acquisition through such initiatives. I mentioned some of the past attempts, like the famous Carlucci Initiatives of the early 1980s that perhaps few of you will remember. I said that we try the same old remedies that have not worked in the past either because we are insincere about reform or because we simply have not thought things through. I think there is a little of both at work. But I believe that the main problem is that instead of asking ourselves the kinds of questions that would lead to better thinking about our problems, and, perhaps, better solutions, we act on the basis of received truths, like the one that says incentives work. We never get to the heart of any matter.

Contracting is an important and a fascinating field, well worth intellectual effort. The very concept of contract is one worth study and contemplation. Most of us here can recite the elements of contract: offer, acceptance, consideration, legal purpose, and competent parties. But have we thought whether the dominant concept of contract in our acquisition world ⎯ sometimes referred to as ?sharp in by clear agreement, sharp out by clear performance? ⎯ is the only one possible and, if not the only one, whether our concept is best for the kinds of acquisitions we conduct today? Should we rethink contract and the way we form and administer contracts?

Yesterday you heard about one facet of the newest reform initiative ⎯ Should Cost studies. Should Cost has been around for a very long time. It is hard to do and requires know-how, lots of people, and a lot of time. Are they worth it? Can anyone identify a major program for which a Should Cost study was done that yielded a better outcome as a result? If you think you can, ask yourself how you know that what you believe is true and how you would prove it to me. (Some of you here know what that would be like.) I am not saying that Should Cost studies do not "work"; I am just asking how we know that they do. I want evidence before investing a lot of time and effort. If the person who advocates greater use of Should Cost knows what he is talking about, why, on November 3 of last year, did he call for the development of Should Cost estimates for all ACAT II and III programs by January 1 of this year, when everyone who knows anything knew that that could not be done. Did anyone say to him before he signed that memo ⎯ ?Boss, that order will make you look silly?? I would have said it, and some of you would have said it. A man or woman whose staff is afraid to tell them that they are about to make a foolish mistake is going to be a fool in short order. One who would resent such advice is already a fool.

I have read and thought and written a great deal about contracts and contracting over the course my career, and my current thinking about contracts is informed and inspired by a 1976 article that I literally stumbled upon ⎯ ?The Many Futures of Contract? by Ian R. Macneil, who died early last year. It is one of the most influential journal articles of the second half of the 20th Century and it has had a profound effect on my thinking about service contracting. I did not learn about it in any contracting class or magazine, but by rambling in law journals looking for something to help me understand the mania for performance-based contracting. I found it by thinking about services, about how we think about them, and about why we think what we think.

In my career as a working 1102 and as a teacher and writer, I have had two sources of professional satisfaction. First, the work of negotiating contracts. Second, the intellectual work of thinking about ideas that are important to our field.

The first source of satisfaction was the negotiating table. I loved negotiating ⎯ the excitement of the receipt of the proposal, the analysis, the thinking, the planning, bargaining to agreement, and documenting the file. I thought that each opportunity to write a price negotiation memorandum was my chance to show off. I loved the camaraderie of the negotiation team, and steak and eggs at Denny?s after a handshake. I tell you truly that I lived for it. Everything else in my work was waiting for the next negotiation, life suspended.

I found the second source of satisfaction in the Aerospace Corporation Library. That source could be pursued after work and early on weekends sitting alone in a quiet corner with a book or an article, a notepad, and my thoughts: What is an evaluation factor and what characteristics do all evaluation factors have in common? How do you define and describe them? How do you use them to evaluate proposals? What is a proposal? Are they the same as offers, as FAR says, or is there more to them? What are rating and scoring, and how do you do them?

Thinking led me to question, and questioning led me to challenge. Sometimes the challenges have been successful in changing minds. More often, they have not. But if more minds would think and challenge, we just might be able to be more effective in challenging received truths and solving some of the professional problems we have faced for so long. We might come up with new ideas that could make our professional lives and results better.

I have been in this business nigh on 40 years. Most of my friends who started out with me have long since retired. I stay because I love it and I still have hope that we can make it better. To do that, we must read and think and learn to ask questions of our leaders. We must challenge them and point out when their ideas make no sense. Most of the time, we will not win our challenges. But, eventually, we may get policymakers from the questioning generation, who will not be offended when a journeyman says ⎯ Prove it. And maybe then we will start making real progress. Contracting is a game that, when played at its highest level, is an intellectual pursuit. Contracting officers, playing at the top of their game, are intellectuals.

Thank you again for the honor of speaking to you.

Thank you.
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