Pentagon shifts approach to speed up commercial buying

WASHINGTON (Reuters) - The U.S. Defense Department is revamping its rules to speed up purchases of commercial items, part of a larger drive to attract new suppliers to the U.S. weapons market and drive down acquisition costs, the Pentagon's pricing czar told Reuters.

The Pentagon has set a new target of 10 business days for deciding whether items such as cockpit displays and other aerospace components are truly commercial, or if they need a more rigorous cost analysis used for items exclusive to the military, according to a previously unreported memorandum dated Feb. 4.

Director of Defense Pricing Shay Assad shared the memo and outlined the changes in an interview with Reuters, conceding that some reviews were taking "far too long," ranging as long as nine months in some cases.

The Pentagon buys $60 billion of commercial items each year from various industries, ranging from office supplies to items built for commercial use but modified for the military. Industry and the Pentagon have been at sparring for years about which of the modified items should be considered military, and how much internal cost data companies should provide about those.

"Industry has had a legitimate complaint about the amount of time it takes us to make a decision," Assad said on Friday.

"We want to try and assure those companies that don’t necessarily do business with us that we really would prefer to buy commercial items," Assad said. He said it was more important than ever for the Pentagon to leverage private investment given budget constraints.

Defense Secretary Ash Carter and other Pentagon officials, keen to drive down weapons costs and benefit from investment by commercial suppliers, have vowed to open the weapons market to technology companies and other innovative suppliers.

But those efforts have foundered due to industry's reluctance to grapple with extensive regulations that apply only to defense acquisitions, as well as concerns about the government's push to own the intellectual property involved.

The industry also has claimed that the department was pressing for confidential pricing details beyond those normally required for commercial items, hurting company profits.

"They are absolutely wrong about their insistence that we were asking for certified cost data. We just want to pay a fair price," Assad said. He called on industry to be provide more data upfront to help contracting officers determine if the pricing they proposed was "fair and reasonable."

A former executive with Raytheon Co, Assad has unsettled contractors with his dogged scrutiny of overhead costs. But his creation in recent years of a department-wide database for pricing and contract data has drawn praise for helping speed up the acquisition process.

In the memo, Assad said the department was revising federal defense acquisition regulations to reflect the changes.

He told Reuters the Pentagon would create a new training course for acquisition officials about the issue, and planned to assign 50 to 70 engineers and pricing experts to five centers around the country as a resource for contracting officers.

He said he also expects to sign a pilot agreement in coming weeks with one major supplier that would pre-certify a group of items as "commercial." He declined to name the firm.

Assad discussed the issue with suppliers at a closed-door event hosted by the Aerospace Industries Association last week, a message cautiously welcomed by industry executives.

"It's encouraging, but the devil is going to be in the details as to how it get implemented," said Phil Jasper, executive vice president and chief operating officer of Rockwell Collins' government systems division.

(Reporting by Andrea Shalal; Editing by David Gregorio)