Contractor Cost Containment Initiative

Purpose

Utilizing ARDAK’s Contract Exploitation System (ACES), ARDAK provided select government agencies objectively documented analysis, comparison of alternatives and recommendations to address rampant contractor cost increases on cost reimbursable procurements. Cost containment is mandatory for ALL Agencies to accurately develop Budget Estimate Submissions (BES) to the DoD, and is critical to receive favorable resource allocation reviews through the DoD’s Program Objectives Memorandums (POM), and most importantly to fulfil the mission.

Problem Statement

Most Source Selection Committees (SCC) DO NOT currently maintain relevant analytics, matrices, and industry standard benchmarks from commercially available sources on Aerospace and Defense (A&D) contractors to develop and integrate stringent cost containment procedures into the source selection methodology and evaluation process. In the absence of benchmarking analytics A&D contractors submit DCAA approved indirect or “wrap rates” to government agencies on cost reimbursable contracts that may be non-competitive when compared to ARDAK’s Contract Exploitation System (ACES) benchmarking analytics within specific market sectors e.g. Logistics, Professional / Technical Services, Maintenance Repair Overhaul and Upgrade (MROU), etc. Should SCC’s continue to evaluate cost reimbursable contracts without the benefit of recent industry standard relative cost containment benchmarking analytics contractor cost reduction and continuous improvement requirements cannot be developed, cost containment goals are difficult to set, and are even more difficult to achieve.

Background and Context

Contractors submit indirect or “wrap rates” and direct labor rates to government agencies for cost reimbursement. Up to 65% of the wrap may be Fringe alone, which many contractors use to their advantage e.g. Affordable Care Act / Obama Care to justify increased Fringe expenses and therefore increased costs. While on the surface industry or market conditions with regard to health care and other factors may seem reasonable, without having specific industry benchmarking analytics to validate, contrast and compare, SCCs are at a distinct disadvantage when determining Rate Reasonableness or Fair and Reasonable Price Determination.

Pilot Initiative Description

ARDAK developed Unsolicited Proposals to select agencies so that SCCs may integrate industry standard direct and indirect benchmarking analytics within their source selection methodology. In addition to providing industry standard metrics, ARDAK purposed providing the resources necessary to fully integrate ARDAK’s Contract Exploitation System (ACES) within the existing source selection methodology. Additionally, ARDAK made recommendations so that agencies may improve its source selection methodology by fully leveraging ACES Agencies will realize the cost savings by holding contractors accountable to industry standard benchmarks within the first three months of integrating ACES within the SCC’s current methodology utilizing a twofold approach, 1) Horizontally across agency’s historical contract basis, and 2) Vertically by Major Programs. The horizontal approach provides parametric analytics within two of the largest sectors and provides immediate access to ACES. The vertical approach, on a program by program, basis provides the time to adopt the methodology across differing acquisition strategies, requirements, schedules, and SCCs.

Benefits

The Army Sustainment Command / Army Contracting Command – Rock Island (ASC/ACC-RI) could leverage ARDAK’s baseline Indirect Rates or “Cost Basis Wrap Rates” and then apply “Must Win” Wrap Rates for Rate Reasonableness guidance. By integrating ARDAK’s Contract Exploitation System (ACES) within ASC-RI’s Source Selection Methodology, ARDAK conservatively estimates an annual cost savings of between $102,112,000 and $132,847,000 will be realized by the ASC-RI.