DOD Hopes for Legislative Action on Product, Services Pricing Policy

1 year ago

Pricing of contracts for military materiel and services at a reasonable cost was the topic of a congressional hearing today.

John Tenaglia, the principal director, defense pricing and contracting in the office of the undersecretary of defense for acquisition and sustainment, and Theresa S. Hull, deputy inspector general, spoke at a House Committee on Oversight and Reform hearing.

The Defense Department's contracting officers sought to award contracts at prices that are fair and reasonable to taxpayers, to the department and to the contractor, Tenaglia said.

"Ideally, our contract pricing is based on competitive market pressures that dictate boundaries of what is fair and reasonable. In procurement of military spare parts, we don't always enjoy the benefit of competitive market forces," he said.

On a positive note, the Defense Logistics Agency was successful in awarding 93% of its contract actions and 77% of its obligated contract dollars through competitive procedures last year, he said. 

This includes, but is not limited to, procurement of all consumable spare parts the military departments require to sustain their weapons systems, Tenaglia said.

However, the department has significant concerns about contracting officers' abilities to obtain data that is necessary to negotiate fair and reasonable prices, particularly for commercial sole-source items, he said.

"Armed with relevant supporting factual data, our contracting officers will negotiate better prices. However, I must clarify, even where we have obtained data such as uncertified cost information, our contracting officers will continue to face challenges where they lack negotiation leverage with sole-source contractors who refuse to yield," he said.

Tenaglia mentioned that there are two issues regarding pricing. 

First is the change needed for contracting officers to obtain data to analyze and negotiate fair and reasonable prices, he said.

The second relates to the business model and whether the law should provide a check against the government paying higher prices for contractors to cover their expenses to acquire companies in the supply chain, particularly where that business model precludes effective competition, he said.

"If unchecked, these expenses will continue to be embedded in the contract prices taxpayers pay for products the warfighter must have to perform the mission," he said.

"The price we pay matters because the more we pay, the less combat capability we can acquire for a ready force," he added.

Hull told lawmakers that fundamental regulatory and statutory changes are urgently needed. 

"Without legislative changes, the DOD will continue to be unable to perform adequate price reasonableness determinations, and the other price analysis methods are not always effective in identifying excessive prices. Therefore, we support the legislative reforms proposed by the DOD. Without these steps, we believe that the DOD will continue to pay excessive prices for spare parts that it needs," she said.

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