WASHINGTON — Ellen Lord, the Pentagon’s head of acquisition and sustainment, thinks she has found a way to incentivize defense contractors to work more quickly and efficiently. And as a wise man once said, it’s all about the benjamins.
In an interview after her keynote at the second annual Defense News Conference, Lord said that as part of a broader package of initiatives, she is looking at ways to offer better cash flow for defense firms if they are working smartly on their projects.
“I believe the lifeblood of most industry is cash flow, so what we will do is regulate the percentage of payments or the amount of profit that can be achieved through what type of performance they demonstrate by the numbers,” Lord said.
Hence, “we’re going to begin to reward companies through profit or through progress or performance payments, as a function of how they manage all of that, as well as quality and delivery and a variety of other things.”
In essence, good actors in industry who are efficient, in both cost and time, will be rewarded; companies who may not be as efficient won’t be likewise rewarded.
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It’s an idea that wouldn’t work without the wide variety of data — both current and historical — now available to provide the Pentagon with a baseline of what should be acceptable and what is not. Lord early in her tenure zeroed in on the need to exploit that data.
The data allows the Pentagon to measure how industry manages “their factories, how they manage their overhead structures, how they are using all of that to manage costs to the actual systems that we are purchasing,” Lord said.
“Do they get proposals in in time, are they good quality, are they meeting their small business targets — a whole variety of things that distill down into data that allows us to measure performance.”
Whether this will work remains to be seen. Traditionally, defense firms have a better cash flow than their nondefense counterparts in the industrial space, and several experts who spokes to Defense News on background wondered if the enticement of cash flow would be enough to convince companies to share data and change their production plans.
Lord said to expect this policy to go into effect sometime before the end of the year.
Aaron Mehta was deputy editor and senior Pentagon correspondent for Defense News, covering policy, strategy and acquisition at the highest levels of the Defense Department and its international partners.
