Talk about an incentive.

The Pentagon is starting to identify its most-favored industrial suppliers in an effort to leverage peer pressure and to highlight leaders eligible for further incentives and inducements.

Pentagon acquisition policy chief Frank Kendall told reporters this month that the entire Defense Department will roll out ranking regimes similar to the Navy Department’s Superior Supplier Incentive Program over the coming year.

To that effect, Kendall and Navy acquisition chief Sean Stackley named the top nine suppliers, by business unit, for the military department responsible for the Navy, Marine Corps and their agencies (rankings, right). The top nine come from a longer list of 80 business units across 30 companies—and notably does not include one of the Navy’s primary shipbuilders, Huntington Ingalls Industries.

“The size of the contract is not a determinant of whether they are on the list,” Stackley responded when asked about Huntington’s absence. “It’s the performance inside the contracts that is the weighing factor.

“In terms of our concerns with Huntington’s performance, we’ve been very direct with where they have issues,” he continued. “And by the same token, we’ve also recognized where they’ve done well. In the aggregate, they didn’t make the cut.”

Navy supplier ranking results are being broken into three tiers, with the top third invited by officials to propose ways the Pentagon can “reduce unneeded administrative or overhead burdens,” according to Kendall and Stackley. While they did not detail options for accommodating such requests, selected suppliers almost certainly will call for reductions in defense contract auditing and management burdens, a long-standing complaint in industry.

The tiered rankings will be shared with industry, Stackley said, although neither he nor Kendall detailed how publicly available or detailed that information would be. Moreover, the rankings do not have a specific role in source-selection criteria in future awards beyond underscoring past performance.

Still, Kendall and Stackley assert the rankings should have an effect over time as companies enjoy or suffer their reputations in the minds of contracting officials, lawmakers and others. Moreover, the rankings will spotlight who should benefit from federal contracting incentives or aspects of the Pentagon’s relatively large buying power. For others, it should goad them into corrective action, they said.

“For the industry part not in that top tier, the recognition of where you are, where your business units are, is going to be a very important incentive for them to find out from their customer what the problems are and to do something about it,” Kendall said. “The people who will respond the most are the people on the bottom tier . . . and that is exactly the kind of behavior we want to see.”

Said Stackley: “Public recognition is a very strong incentive. We want to sit down and say, ‘You’ve been a good performer,’ so let’s . . . figure out what we can do across a contract—within our regulations—to provide added incentive to stay on that path.”

Suppliers in the Navy rankings were evaluated using the Pentagon’s Contractor Performance Assessment Reporting System (CPARS), an unclassified enterprise resource software system for collecting contractors’ past-performance information, a required consideration under Federal Acquisition Regulations (FAR) and its defense offshoot, the DFAR. Kendall and Stackley said CPARS also will be used to judge contractors for the Air Force, Army and other defense agencies.

CPARS-type results are shared on a contract-by-contract basis now, but the Navy Superior Supplier program is an attempt to take a higher-level approach to assessing a company’s or business unit’s reputation. According to Stackley, “If you’re not on the list and you’re competing against someone on the list, that’s a clue to you that his CPARS [score] outperforms your CPARS.”

The offer of incentives for good behavior comes as part of the latest wave of defense acquisition reform to roll through Washington, and specifically Kendall’s efforts to encourage better outcomes from Pentagon personnel and contractors (AW&ST Dec. 2, 2013, p. 28). The June 13 press conference where suppliers were discussed was centered on the latest release of a data-intensive report, called the Performance of the Defense Acquisition System, by the office of the undersecretary of defense for acquisition, technology and logistics.

“By human nature, performance is incentive-driven,” the new report begins. “In our second annual report on acquisition performance, we focus on incentives—particularly those from contract types and profits or fees.” Kendall’s office goes on to assert that “there is adequate opportunity to provide effective incentives to industry without changing aggregate returns for defense firms in general.” 


Top Nine U.S. Navy Department Suppliers, by Business Unit

General Dynamics Combat Systems

• General Dynamics Marine Systems

General Electric Aviation

Lockheed Martin Mission Systems and Training

• Maritime Helicopter Support Co.*

Northrop Grumman Aerospace Systems

Raytheon Integrated Defense Systems

• Raytheon Intelligence, Information and Services • Rolls-Royce Defense Aerospace

* Joint venture of Lockheed Martin and United Technologies subsidiary Sikorsky Aircraft

Source: U.S. Defense Department