US Air Force Exploring Changes to Contract Structures

By Nick Zazulia | November 1, 2018
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The Pentagon. (DOD)

Military contract structures are changing; They need to to keep up with the pace of technology. Both government and industry are trying to figure out what the future of those contracts needs to look like as everyone tries to match the “speed of relevance” goal set by Defense Secretary James Mattis.

“We can’t do software the way we’ve been doing it the past 40 years,” said Todd Probert, VP of mission support and modernization at Raytheon, which has started investing in numerous partnerships across Silicon Valley to bolster its ability to offer technology at the forefront of innovation. “We’re making a big bet that we have to change the way we go to market.”

The Defense Department is facing a similar crossroads, looking at different ways of offering contracts to speed the process up and provide less structure to contractors while still abiding by rules and making sure the government is necessarily protected, not simply handing out money free of requirements to be met. There are strict guidelines that govern how contracts can be written, but those may need to change. To explore that, the U.S. Air Force is using Other Transactional Authorities (OTAs) under U.S. Code 2373, which allows freer procurement for experimental or test use.

There is a limit on how long OTAs can sustain contract-writing, but they’re being used for certain projects, such as the endeavor to switch IT from internal to external, and the grander plan of examining procurement processes to take into account for future rulemaking.

“How can the Air Force integrate commercial-integrated services?” is the question, according to Christina Rhylander, program manager for the Network as a Service program in the Air Force Life Cycle Management Center at Hanscom. “What do we as the Air Force need do differently, and what do we need vendors to do differently? The goal is that the Air Force is able to make a larger [shift now] to change underlying things so we can integrate current and future commercial technologies more easily with fewer changes.”

At six bases, the Enterprise IT as a Service group is using OTAs — two granted so far, in September, worth $121 million total, with more to follow — to accomplish this. Lt. Col. Bradley Panton said he expects it to pay off, though it’s also an exploratory process for everyone involved; the contracts so far involve the Network as a Service program and vendors Microsoft and AT&T.

“The use of OTAs is not the norm,” said Panton, who is a senior materiel leader overseeing Enterprise IT as a Service in the Air Force’s Life Cycle Management Center at Massachusetts’ Hanscom Air Force Base. “Doing something outside the norm is going to instill a little uneasiness across both parties. It’s been challenging but worthwhile.”

Panton and Rhylander aren’t sure what military contracts will ultimately look like, but they did say that they’ll probably be less open-ended than the OTAs currently being used even if they’re based on those. Because the current OTAs are experimental and new in nature, it necessitates a lot of extra unknowns — whatever is settled on should have more established and predictable parameters even if it is intentionally allowing for more flexibility than the current contract structures, Panton said.

Rhylander said a focus of the process has been letting the “commercial side of the process … lead and adding what you’d need for DOD on top of it without negatively impacting that commercial solution.” The military and industrial teams are working in a much more collaborative and close-knit fashion than usual to find what works best, she said.

New contracts with vendors taking on more responsibility and furnishing the Defense Department with more cutting-edge commercial off-the-shelf (COTS) technology will also require more freedom allowed to contractors.

“In each of these lines of effort, we’re asking a lot of the vendor to provide to us,” Panton said “It’s really hard to find one partner who can provide everything within each of these… so we fully expect them to form strategic alignments and partnerships”

That supports Raytheon’s strategy. Probert said Raytheon has formed partnerships with “a dozen or so” Silicon Valley companies and will regularly tour them, see what they have to offer and cherry-pick the best technologies to adapt and offer to customers such as the military.

The company has been developing that portfolio over the last several years, moving away from the “old way” of almost exclusively making things in-house, Probert said. Raytheon aims to “balance the equation with more of an emphasis on ‘buy.’”

In some cases that can look like taking a stake in a company or providing investment support, but often it is just making agreements, keeping track of what the smaller company is doing, and when the technology is matured enough, purchasing it for adaptation. Sometimes Raytheon will license processes or engage in joint research and development, other times it will have a data buy—there’s a “continuum of different ways to do that,” Probert said. “Some of these will fail. False steps are okay.”

He said the attitude of branching out collaboratively is getting more and more important because software and technology are getting less restricted. For example, he said, “imagery fields have collapsed. In the past, it was all satellite- and ground-based. Now it’s all blurred and fused. The same tech is being used in medical, like X-ray capabilities.”

Because the same underlying technology is fueling advancement in lots of different industries, it makes sense for Raytheon to leverage that research and innovation, and take advantage of it to offer new things to the customers instead of trying to reinvent the wheel in-house. “Prognostics can apply to a car as well as a big machine like an aircraft,” Probert said.

Raytheon has seen some of the contracts it has gotten from the military change in accordance with these new philosophies, such as one to upgrade the Air Force Operations Center. Probert said sometimes time frames are more like 120 days now rather than the years they used to be— the changing speed of relevance has changed the paradigm. Raytheon has changed its own contracts as well for that purpose — they’re less constrictive and focus on open architectures and being involved rather than locking up intellectual property like they might have in the past.

One ever-present concern in the digital age, and one that is magnified when integrating commercial technology into secure systems, is security. Probert said Raytheon’s strategy for dealing with security is to primarily take technology on when it is already matured and to push updates “at 100% rather than 85%,” so bugs are worked out. That said, he also said the company “expects when, not if on hacking.”

The military also needs to grapple with security and how that balances with a need to be swift. Currently, the forces use the risk management framework (RMF).

“Is the RMF process the best process to use, or is there something else out there that can ensure the same level of security that we require that isn’t as cumbersome?” Panton asked. He said he didn’t know the answer, but it’s something the military needs to figure out as it experiments with faster integration of new technologies.

As the military does that, he wants everyone to remember, “It all started here. If we go down this road and every Air Force base is using this technique — it all started here.”

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