Pentagon balks at congressional bid to ease multiyear deal terms

Reuters News
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Posted: Apr 06, 2015 3:05 PM

By Andrea Shalal

WASHINGTON (Reuters) - The Pentagon is pushing back against congressional moves to ease requirements for multiyear weapons procurements, saying it will continue to insist that such deals generate significant savings for the government before relinquishing yearly control.

Even if Congress changes the law, U.S. Defense Undersecretary Frank Kendall said program managers would still need to show savings of "pretty darn close to 10 percent or better" to get approval to sign a contract of up to five years.

"Whether the law says 'significant' or not, we're going to require significant savings to do a multiyear," Kendall said in an interview on Friday. "If that change goes through, I don't think it will affect our behavior. Not while I'm here."

Arms manufacturers have long pressed the U.S. government to approve more multiyear agreements to ensure stability for suppliers and prime contractors while driving down costs.

Defense officials set strict standards for such deals since the government can face steep termination fees if budget cuts or other factors force it to cancel orders after a signing a longer-term contract.

Representative Mac Thornberry, chairman of the House Armed Services Committee, proposed dropping the word "significant" from current requirements for multiyear agreements as part of package of acquisition reforms introduced last month.

"The thinking is that if you can save even 1 percent on a $1 billion deal, why wouldn't they," said one committee aide.

The aide said Thornberry was willing to risk some loss of yearly control over programs to see if greater use of multiyear deals could improve the Pentagon procurement process.

Current law permits the Pentagon to approve certain weapons purchase contracts for up to five years, if such deals have fixed price terms and officials can show that such a deal would result in substantial savings over yearly contracts.

Officials generally target savings of 10 percent or more for such deals, although the goal is not strictly required, and some deals have been approved with less savings.

Kendall said savings of 10 percent were required by an earlier version of the law, and remained the department's benchmark.

Shay Assad, the Pentagon's pricing czar, last month said he also favored a high bar for multiyear agreements.

"While you can save some money, I'm not sure that the flexibility that we lose is worth it," he said.

(Reporting by Andrea Shalal; Editing by David Gregorio)